Back to top

Image: Bigstock

Why Is FactSet (FDS) Up 3.4% Since Last Earnings Report?

Read MoreHide Full Article

It has been about a month since the last earnings report for FactSet Research (FDS - Free Report) . Shares have added about 3.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is FactSet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

FactSet Beats Earnings and Revenue Estimates in Q4

FactSet Research reported impressive results for fourth-quarter fiscal 2019, wherein it topped the Zacks Consensus Estimate on both counts.

The company reported adjusted earnings per share of $2.61, which surpassed the Zacks Consensus Estimate by 14 cents. The figure increased 18.6% on a year-over-year basis driven by strong operating performance.

Revenues in Detail

FactSet’s revenues of $364.3 million increased 5.3% from the year-ago quarter and exceeded the Zacks Consensus Estimate by around $2 million. The uptick was driven by higher sales of analytics, content and technology solutions (CTS) as well as wealth management solutions. Organic revenues increased 5.3% year over year to $365.6 million. Region-wise, U.S. revenues increased to $222.1 million from $213.9 million in the year-ago quarter. International revenues were $142.2 million compared with $131.9 million in the year-ago quarter.

ASV Plus Professional Services

FactSet’s Annual Subscription Value (ASV) plus professional services was $1.48 billion at the end of the quarter, up 5% year over year. Organically, it increased 5.1% year over year. Buy-side and sell-side ASV growth rates were 4.8% and 6.3%, respectively. Nearly 84% of organic ASV was generated by buy-side clients. The rest were derived from sell-side firms performing functions like mergers and acquisitions advisory work, equity research and capital markets services.

ASV generated from the United States was $909.7 million, up 4.7% from the prior-year quarter’s level. Internationally, ASV was $548.3 million, up 4.6% year over year. FactSet added 119 clients in the reported quarter, taking the total number to 5,574. Annual client retention was 89%. At the end of the quarter, total employee count was 9,681, up 1.1% year over year.

Operating Results

Adjusted operating income came in at $123.9 million, up 14% from the year-ago quarter’s figure. Adjusted operating margin increased 260 basis points (bps) to 33.9%. Selling, general and administration expenses increased 3.5% to $85 million. Total operating expenses decreased 1.5% to $252.7 million.

Balance Sheet and Cash Flow

FactSet exited the fiscal fourth quarter with cash and cash equivalents of $359.8 million compared with $324 million in the previous quarter. Long-term debt at the end of the quarter was $574.2 million compared with $574.1 million in the prior quarter. In the quarter, the company generated $121.8 million of cash from operating activities and capital expenditure was $26.5 million. Free cash flow was $95.3 million. FactSet repurchased 221,292 shares for $62.1 million during the quarter. A quarterly dividend of $27.3 million was paid out on Sep 19.

Fiscal 2020 Outlook

FactSet anticipates adjusted EPS in the range of $9.85 and $10.15. The company expects revenues between $1.49 billion and $1.50 billion. Organic ASV plus professional services for fiscal 2020 is projected to increase in the range of $65-$85 million. Adjusted operating margin is projected in the range of 28.5%-29.5%. The annual effective tax rate is expected between 17% and 1.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, FactSet has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise FactSet has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


FactSet Research Systems Inc. (FDS) - free report >>

Published in