Factset Is Underloved And Outperforming
Factset Research Systems (NYSE:FDS) emerged as a buyable stock for me early in the pandemic because its revenue proved pandemic resistant, the stock was woefully underloved by the analysts, and it paid a very safe and growing dividend. Since then the stock has outperformed the market’s expectation, the sell-side market that is, and become a great play for contrarian investors. Now, with the FQ1 revenue and earnings in the bag, the stock is attractive as it ever was.
The average rating for this stock is Hold but with a decidedly bearish bias. Of the 12 current ratings, only 5 are neutral while 7 are bearish. Their consensus estimate is near the $290.00 level or about 16% below the current price range but take that with a grain of salt. The consensus price target has been edging higher since the summer gaining more than 18% and I expect it to continue rising. The most recent analysts calls came out in October after the last report, there will be more now, mark my words.
Factset Research Systems Beats The Consensus
Factset Research Systems has been having a good year. The company’s revenue growth slowed to about 2% in the calendar 2nd quarter but has since rebounded back to pre-COVID levels. The $388.2 million reported in the fiscal 1st/calendar 3rd quarter is up 5.9% YOY and 1.2% QoQ with YOY growth accelerating from the previous quarter to this. The revenue beat the consensus but by an admittedly small margin, about 0.15%.
The increase in revenue is due primarily to an increase in demand for analytics (go figure), content, and technology services (another no brainer). Organic revenue grew 5.1% with the remainder due to acquisitions and FX. The annual subscription value came in at $1.56 billion, in-line with consensus, and up from last year’s $1.48 billion.
“We have more conviction in our end markets than we did when we started the fiscal year,” said Phil Snow, FactSet CEO. “Our pipeline remains robust, built on the investments we are making in content and technology. The number and depth of conversations we are having with our largest clients around digital transformation, and how we can help streamline their workflows, position us well as we enter our second quarter.”
Moving down, the company’s margins expanded as well providing a lever for earnings. The adjusted operating margins grew 50 bps on a YOY basis to 34.3% due to reduced employment costs related to COVID-19. Unlike some other business types, Factset Research Systems is uniquely positioned to capture the bulk of potential savings from work at home trends. Market research can be done on the Internet from anywhere, just ask me, I know all about it. On the bottom line, the GAAP eps beat consensus by $0.03 while adjusted eps of $2.88 beat by $0.14.
Factset Research Systems Is Not A Cheap Stock
Looking at Factset Research Systems from the value perspective it is not cheap. The stock trades about 30X its earnings and at a multiple well-above the broad market but there is a reason. This stock is a powerhouse of cash generation, has blue-chip business investors want to own, and an incredibly safe (and growing) dividend. The only negative is the yield which is sub-1% but match it up with a 21-year history of distribution increase, a 13% 5-year CAGR, a 28% payout ratio, and a fortress balance sheet and it gets more interesting. The next increase is due in the 2nd calendar quarter of 2021.
The Technical Outlook: Moving Up, Possibly Range-Bound
Shares of FDS staged a solid rebound from the March lows moving up to set a new 2021 and all-time-high in the process. Since then, price action has been trapped within a range but that may be about to change. The Q1 news is good and should support upward drift if not outright bullish activity. The price action is above the short-term moving average where investors should expect at least some buying. If support confirms at this level price action may move up to the $360 level, a break about there would be bullish.
Before you consider FactSet Research Systems, you'll want to hear this.
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