Stock (Symbol)

Factset Research (FDS)

Stock Price

$186

Sector

Financial

Data is as of

October 22, 2017

Expected to Report

Dec 18

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

This fantastic stock market we are in is great for Factset Research (FDS), which provides financial data and analytics to hedge funds, investment managers, investment bankers, wealth managers and private equity firms. In fact, Factset Research has had it good for close to 40 years. The company was founded in 1978 and has grown profits every year since it went public in 1996. 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 of around 6-10%. Management buys back lots of stock ($44 million last qtr alone) and makes acquisitions that boost revenues and profits. All-in-all, this company doesn’t have to get many (any?) new clients to grow profits above 10%. In fact, 2017 could be the third consecutive year of 14% profit growth. This is a save stock with an Est. LTG of 11% a year in addition to a 1% yield. The only negatives here are average selling value (contract renewals) rose just 6% last qtr and the current trend of investors is to put their money in indexes and ETFs, devices with rarely need Factset research.

One Year Chart

Profit grew 12% last qtr, on a 14% rise in sales (which was helped by acquisitions). Results met expectations. Factset is changing its accounting on employee stock options, and that has boosted profit estimates. 2018’s est. rose from $8.01 last qtr to $8.19 this qtr. 2019’s went from $8.70 to $9.00. Qtrly Estimates also rose and now stand at 13%, 12%, 11% and 12%. 9% and 9% profit growth the next 4 qtrs. FDS just broke out, which is great. But I feel some of the reason for the breakout was from the estimate increases, which was really just from an accounting change not a pickup in business.

Fair Value

I have high expectations for this stock, and have given it a Fair Value of 26x earnings. That’s more than double the Est. LTG. But with the stock market doing well, money managers have more cash to pay for subscription services, and with this environment so nice I foresee continues success for FDS.

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). FDS is a safe stock, pays a dividend, and management buys back stock in addition to making acquisitions. I like this stock for conservative accounts. FDS ranks 10th of 31 stocks in the Conservative Growth Portfolio Power Rankings.