IHS Markit Q4 Earnings Nothing To Write Home About
IHS Markit (NYSE:INFO) emerged as a pandemic winner over the summer for a couple of reasons that really don’t have much to do with the pandemic. The company isn’t a stay-at-home consumer goods retailer and it isn’t in the business of eCommerce or tech other than using it to connect with its clients. The company saw its revenue fall nearly 10% in the calendar 2nd quarter of 2020 so it wasn’t immune so why was it a winner? Because the company’s revenue fell less than expected, the outlook for the rebound was good if not robust, and there was a dividend to consider.
As a purveyor of market data, its services, at least some of them, came into high-demand helping to offset areas of weakness and return the company to YOY growth. The problem is that 1) growth is tepid and in the low-single digits and 2) the growth and earnings the company reported for the Q4 period are nothing more than what the market was expecting. In this time of high expectations and valuations (shares of INFO trade close to 30X earnings) giving the market only what it expects may not be enough to keep shares prices from falling.
IHS Markit Rises On Mixed Results
Shares of IHS Markit rose about 1.0% in pre-opening trading following what can only be called a mixed report. The company’s $1.11 billion in revenue is up 2.8% on a YOY basis but only in-line with the consensus and driven entirely by acquisitional growth. On an organic basis, revenue is down slightly from the year-ago period on mixed segment results. On a segment basis, the Financial Services and Transportation segments grew 7% and 4% respectively while Resources and Consolidated Markets & Solutions fell -11% and -2.0%.
Moving down the report, the company’s gross margins came in at 42% while net margins came in at 13.6%. The GAAP earnings of $0.38 fell short by $0.02 while adjusted earnings of $.72 beat by $0.05. The good news here is that adjusted earnings are up on a YOY basis, that news is offset however by the YOY decline in GAAP earnings. Looking at things from the balance sheet perspective, cash from ops came in at $338 million or up slightly on a YOY basis with FCF of $275.0 million. The free cash flow is important because the company is acquiring growth where it can and paying a dividend that is expected to grow.
IHS Markit Returns Cash To Shareholders
IHS Markit initiated dividend payments at the end of 2019 and has proven to be a stable payer during 2020. The stock is yielding less than 1.0% at this time but there is a high-expectation for dividend increases in the future. Based on the company’s payout ratio (about 24%), FCF, and balance sheet future dividend increases could be large and repetitive on an annual basis.
The Technical Outlook: IHS Markit Is At An Inflection Point
Shares of IHS Markit opened the session lower despite early indications of upward movement in the premarket session. Price action is sitting just above the bottom of a recently formed trading range and may move down to test that bottom in the near term. Support is possible at or near the $85 level but it is not guaranteed. If price action falls below that level a move down to $84 and even $80 is possible. Longer-term, price action will likely trend sideways within a range until the broader economic reopening gets underway. At that time revue and earnings growth should accelerate and drive the stock higher.
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7 Semiconductor Stocks to Power Your Portfolio
Semiconductor stocks are thought of as cyclical stocks. However as technology continues to evolve, the cycles for semiconductors have become almost indiscernible. And for the last 18 months, semiconductor stocks have been some of the most volatile stocks.
But the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) is up nearly 17% (16.8%) in 2020. That far outpaces the S&P 500. And this is on the heels of 2019 when the normally “boring” index surged over 60%.
What are the catalysts for semiconductor stocks? At this point, the better question may be what isn’t a catalyst for this group. The 5G buildout looks to finally be underway despite the pandemic. Data centers keep on growing, new gaming consoles will be out later this year, and work from anywhere will continue to be the reality for many Americans.
Each of these segments will define the semiconductor industry for at least the rest of this year. And are likely to continue to dominate our national conversation long after the pandemic is over.
But those aren’t the only catalysts. Online learning is going to increase in importance. And that means students will need the laptops and tablets that are capable of handling the speed and processing power needed for remote learning.
And there’s still time for you to profit from this growing sector. In this presentation, we’ve identified seven of the best semiconductor stocks that still offer good growth opportunities.
View the "7 Semiconductor Stocks to Power Your Portfolio".