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FactSet Benefits from Organic Growth, Debt Woe Persists

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FactSet Research Systems Inc. (FDS - Free Report) is benefiting from strong organic growth and innovative analytical product suite. Shares of FactSet have gained 2.1% year to date, against the industry’s 19.8% decline.

Recently, FactSet reported impressive results for first-quarter fiscal 2019. Adjusted earnings per share of $2.35 surpassed the Zacks Consensus Estimate by 7 cents. Earnings increased 15.2% on a year-over-year basis. Revenues of $351.6 million increased 6.8% from the year-ago quarter’s tally and beat the consensus mark by $2 million.

The company has an impressive earnings surprise history. It beat the consensus mark for earnings in three of the trailing four quarters, the average being 1.9%.

What’s Driving FactSet?

The company continues to grow organically on the back of strong wealth management and content as well as the technology solutions (CTS) business. Organic revenues grew 6.4% in the first quarter of fiscal 2019 and 5.6% in fiscal 2018. Organically, the company’s Annual Subscription Value (ASV) improved 6.6% year over year in the first quarter and 5.7% in fiscal 2018.

With the market adapting a quantitative approach to save time, reduce operating expenses and increase work efficiency, FactSet’s innovative analytical product suite is expected to perform well. To this end, inclusion of Data Exploration (a cloud-based data platform) in July 2018 and launch of Open: FactSet Marketplace in May 2018 bode well.

FactSet Data Exploration is expected to help financial professionals evaluate financial datasets and generate investment applications with the help of Microsoft (MSFT - Free Report) Azure. Open:FactSet Marketplace is a new online platform which offers core financial and alternative datasets to address the growing demand for integrated data.

FactSet has a consistent record of returning value to shareholders in the form of dividend and share repurchases.

Risks

FactSet’s balance sheet is highly leveraged. As of Nov 30, 2018, long-term debt was $574.8 million while cash and cash equivalents were $170.4 million. Such cash position implies that the company needs to generate adequate amount of operating cash flow to curb debt. Also, high debt may limit the company’s future expansion and worsen risk profile.

In spite of technological advantage, pricing pressure persists as a major headwind for FactSet, hurting revenues and market share.

Zacks Rank & Stocks to Consider

Currently, FactSet is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the Zacks Business Services sector are Republic Services (RSG - Free Report) and Blucora (BCOR - Free Report) , each carrying a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for Republic Services and Blucora is 10.7% and 17.5%, respectively.

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