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Verisk (VRSK) Rides on Organic Growth & Buyouts, Debt High

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Verisk Analytics, Inc. (VRSK - Free Report) looks strong on the back of its predictive data analytics portfolio. The company continues to grow with the help of acquisitions and organic growth.

The company’s fourth-quarter 2018 earnings missed the Zacks Consensus Estimate while revenues beat the same. Adjusted earnings of $1.04 per share missed the consensus estimate by 2 cents and declined 21.8% on a year-over-year basis. Quarterly revenues of $613.9 million beat the consensus mark by $4 million and improved 7.7% year over year on a reported basis. The figure improved 5.4% year over year on an organic constant-currency (cc) basis.

Verisk has an impressive earnings surprise history, having outpaced estimates in three of the last four quarters. It delivered average four-quarter positive earnings surprise of 1.3%.

What’s Driving Verisk Analytics?

Verisk’s expertise in providing predictive data analytics decision by using advanced technologies to collect and interpret different types of data sets is impressive. The company mainly uses advanced technologies such as latest remote sensing and machine learning technologies along with cloud computing to serve customers in areas of rating, underwriting, claims, catastrophe and weather risk, natural resources intelligence and economic forecasting. Its efforts to stay technologically updated to meet varying client demands and its technical prowess in analytics and Big Data provide Verisk an edge over its competitors.

Higher organic revenue growth through a combination of increase in new customers for existing solutions, cross-sale of its existing solutions to existing customers and the sale of new solutions will help Verisk create long-term value. In 2018, total revenues grew 6.5% organically and 6.1% on an organic constant-currency basis. This marks an improvement from 2017 when total revenues grew 4.5% organically and 5.3% on an organic constant currency basis.

Moreover, Verisk continues to earn a major portion of its revenues from subscriptions and long-term agreements. In 2018, Verisk’s three reportable segments: Insurance, Energy and Specialized Markets and Financial Services generated a respective 82%, 78% and 73% of revenues from subscriptions and long-term agreements for its solutions.

Acquisitions have also been one of the key growth catalysts for Verisk. The company has been continuously acquiring and investing in companies globally to expand its data and analytics capabilities across industries. In 2018, the company acquired four companies — Rulebook on Dec 14, Validus-IVC Limited on Jun 20, Business Insight Limited on Feb 21 and Marketview Limited on Jan 5. While Rulebook should solidify Verisk's position in the global insurance market, the buyout of Validus will help improve and automate the claims settlement process. The other two acquisitions will help Verisk in its predictive analytics and consumer spending analytics decision making.

Risks

Verisk’s balance sheet is highly leveraged. As of Dec 31, 2018, long-term debt was $2.05 billion while cash and cash equivalents were $139.5 million. Such a cash position implies that Verisk needs to generate adequate amount of operating cash flow to service its debt. Also, high debt may limit the company’s future expansion and worsen its risk profile.

Since Verisk’s business model centers on huge amount of data, it remains susceptible to operational risks related to security breaches at its facilities, computer networks, and databases, resulting in loss of its credibility and/or customers. Dependence on external sources for data supply can lead to contractual and pricing issues with data suppliers (some of them are also its rivals).

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader Zacks Business Services sector are Omnicom (OMC - Free Report) , Robert Half (RHI - Free Report) and Automatic Data Processing (ADP - Free Report) , all carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Omnicom, Robert Half and Automatic Data Processing is 6.9%, 8.4% and 12.8%, respectively.

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