IHS Markit Ltd. (INFO - Free Report) remains poised for growth with solid recurring revenue generation capacity, operational efficiency and financial discipline.
The leading information provider has an impressive Growth Score of B. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of the quality and sustainability of its growth.
IHS Markit’s long-term earnings growth rate is pegged at 12%. For fiscal 2019 and 2020, the bottom line is expected to grow 12.7% and 11%, respectively.
Year to date, the stock has surged 53.5% compared with the 43.7% rally of the industry it belongs to.
Factors Aiding the Stock
IHS Markit’s business model ensures solid recurring revenue generation capacity, allowing the company to deliver stable revenues and predictable cash flows. The company’s recurring revenues increased 12.1% in the third quarter and 12.6% in the first nine months of fiscal 2019, on a year-over-year basis.
IHS Markit Ltd. Revenue (TTM)
Furthermore, IHS Markit’s operational efficiency and financial discipline contributes to margin expansion. The company’s adjusted EBITDA margin expanded 170 basis points (bps) in the third quarter and 130 bps in the first nine months of fiscal 2019, on a year-over-year basis.
Also, IHS Markit’s business requires low capital requirement, which in turn, boosts its cash generation capacity and allows it to pursue acquisition opportunities. Strategic acquisitions over time have helped the company to expand offerings and strengthen international footprint. The company’s free cash flow increased 8% year over year in the first nine months of fiscal 2019.
IHS Markit could see an escalation in its costs, which are already high. A major portion of its incurred costs is acquisition related.
In the first nine months of fiscal 2019, the company incurred $67.6 million in costs related to acquisitions and divestitures. Of this, $46 million was performance compensation expense related to the automotiveMastermind (“aM”) acquisition.
In fiscal 2018 and 2017, the company incurred $135 million and $113 million acquisition-related costs, respectively. Over the next several years, it expects additional acquisition-related costs associated with the aM buyout as well as remaining integration costs related to the merger.
Zacks Rank & Stocks to Consider
IHS Markit currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are Global Payments (GPN - Free Report) , Cardtronics (CATM - Free Report) , and Fiserv (FISV - Free Report) . While Global Payments and Cardtronics sport a Zacks Rank #1 (Strong Buy), Fiserv carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected EPS (three to five years) growth rate for Global Payments, Fiserv and Cardtronics is 18.1%, 13.8% and 4%, respectively.
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