Stock (Symbol)

Factset Research (FDS)

Stock Price

$202

Sector

Financial

Data is as of

January 30, 2018

Expected to Report

Mar 26

Company Description

FDS is a provider of integrated financial information and analytical applications to the global investment community. FDS combines content regarding companies and securities from markets all over the globe into a single online platform of information and analytics. Source: Thomson Financial

Sharek’s Take

Acquisitions helped to boost Factset Research’s (FDS) sales from what would have been 6% to 14% last qtr, and helped profits climb a respectable 17%. Factset provides financial data and analytics to hedge funds, investment managers, investment bankers, wealth managers and private equity firms. Mutual funds and hedge funds depend on Factset to compile research and due diligence to get company data, market data, news and research. The company sells its software on a subscription basis, which gives it a steady stream of revenues each quarter, and passes along small fee increases each year. Last qtr the average selling value of contracts rose 5%, which is a concern as ASV used to grow in the 7-9% range years ago. Overall, Factset is a wonder of a stock. The company was founded in 1978 and has grown profits every year since it went public in 1996 at $4 a share. Management buys back lots of stock and makes acquisitions that boost revenues and profits. FDS has had profits and its stock compound at 13% the last decade, and my guess is that trend will continue. This is a save stock with an Est. LTG of 12% a year in addition to a 1% yield. But since investors are aware of the quality this stock possesses, the P/E is relatively high at 24. But you get what you pay for. FDS is a core holding in the Conservative Stock Portfolio. Although my upside to 2018’s Fair Value is just 8%, profits will likely be boosted from a tax rate that could fall from 35% to 21% on its US revenue, which is 60% of total sales. UK makes up the other 40% of sales and is taxed at 17%. Thus the overall rate could go from 28% to 20%.

One Year Chart

That ASV figure is concerning to analysts. The company depends on raising prices to deliver double-digit profit growth. And honestly, the software should be good enough to justify a 7% bump. Last qtr ASV was just 5%, two qtrs ago it was 6%. I think passive investing into ETFs and Index funds is taking money away from Factset. FDS did beat the street last qtr, and annual estimates increased, so for now everything is OK. Qtrly Estimates have risen for two qtrs straight, and now stand at 13%, 14%, 14% and 7%. FDS fell after it reported earnings, but has since recovered.

Fair Value

Although FDS has a LTG of just 12% a year, I give it a Fair Value of 26x earnings due to the high degree of consistency the company has in growing profits. My 2018 upside is just 8%, plus a 1% yield, but estimates have increased from $2.01 to $8.38 the past 2 qtrs and there will probably be more increases ahead once the tax plan gets settled.

Bottom Line

Factset is one of the world’s finest companies. It’s software is needed by investment managers to make decisions, and these managers pony up to subscribe each year (in addition to price increases). But the trend of investors to invest in ETFs and Index funds could cause growth to slow. Factset is a safe stock, pays a dividend, and management buys back stock in addition to making acquisitions. I consider this to be a 13% grower. FDS ranks 11th of 32 stocks in the Conservative Growth Portfolio Power Rankings.