Factset Research (FDS) Shows Strong Growth Despite Market Challenges

Stock (Symbol)

Factset Research (FDS)

Stock Price

$411

Sector

Data is as of

Expected to Report

Company Description

FactSet Research Systems Inc. is a provider of integrated financial information, analytical applications and services for the investment and corporate communities.

The Company delivers information through its four workflow solutions of Research, Analytics and Trading, Content and Technology Solutions (CTS) and Wealth.

It serves a range of financial professionals, which includes portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors, and corporate clients.

The Company provides both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and execute trades. It also offers subscription to products and services such as workstations, portfolio analytics, enterprise data and research management. Source: Refinitiv

Sharek’s Take

Factset Research (FDS) reported solid profit growth last quarter despite lackluster sales growth. FDS managed to report an solid profit 15% profit growth despite only a 4% revenue increase. The company is facing challenges due to clients cutting budgets, which has led to longer sales cycles and external factors like the lower licenses due to the closing of the Credit Suisse-UBS merger have further dampened revenue growth across their global markets. These challenges have brought Annual Subscription Value (ASV) down to 5.0%. Note, the ASV has been going down these last 4 quarters, from 7.1% 4QtrsAgo, 7.1% 3QtrsAgo, 5.4% 2QtrsAgo, and 5.0% LastQtr. Overall, FDS managements believes that the company is well positioned for growth when the market picks up.

Factset Research provides market intelligence on securities, companies, and industries that equips clients with the right research investment tools and ideas so they can personally analyze, monitor, and manage their portfolios. Buy-side clients include portfolio managers, analysts, traders, and wealth managers. Sell-side clients include firms that perform mergers and acquisitions, advisory work, capital markets services, and equity research. The big statistics analysts look at when evaluating FDS is the Organic Annual Subscription Value (ASV) of contracts clients sign. During the past 8 qtrs, ASV has been: 9.3%, 8.8%, 9.1%, 8.0%, 7.1%, 7.1%, 5.4%. and now 5.0%. In a span of 2 years, ASV went down by almost half.

Stats from last qtr include:

• Profit growth of 15% on 4% revenue growth.
• Total client count increased by 9 to 8,029.
• User count increased by 1,662 to 208,140.
• Organic ASV plus professional services growth of 5.0%.
• ASV growth by region:
  • Americas +5.7%, gains from asset owners and wealth managers were offset by continued client cost rationalization.
  • EMEA +4.4%, growth was driven by a price increase, sales to asset owners, and higher ASV from analytics products suite.
  • Asia Pacific +6.1%, management saw acceleration from buy-side firms driven by front office solutions and growing transactional revenues.

FDS is a high quality stock with 44 consecutive years of revenue growth and 28 consecutive years of adjusted EPS growth. Profits have grown every-single year since the company went public in 1996. The secret to the recipe of growth-every-year is 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. Thus, 5% or so user growth combined with 5% price increases and stock buybacks have made 12% profit growth possible in the past. Management buys back lots of stock and makes acquisitions that boost revenues and profits. Factset also pays a dividend, which has increased for 25 consecutive years. April 2023’s increase was 10% to $0.98 per share, per qtr. Factset is part of the Conservative Stock Portfolio. This is a fabulous buy-and-hold stock.

One Year Chart

The Est. LTG of 10% is the same as last quarter.

Qtrly profit growth is expected to be better next quarter. But that’s because growth was -6% a year ago so comparisons are easy.

Earnings Table

• Annual Subscription Value (ASV) grew 5.0% year over year.
• Buy-side organic ASV growth was 5.3% which is accounted for 82% of organic ASV.
• Sell-side organic growth was 3.7% which is account for 18% of organic ASV.
• Overall ASP retention remained higher than 95% and client retention was 90%.

Annual Profit Estimates is up for 2024, and down for 2025 and 2026. For 2024, management expects revenue to be in range  of $2.18 billion to $2.19 billion, down from $2.2 billion to $2.21 billion).

Qtrly Profit Estimates are 24%, 5%, 5%, and 4%. Analysts estimate revenue will grow 2% next quarter.

Fair Value

My Fair Value

FDS has a Fiscal year-end of August 31.

Bottom Line

Factset Research (FDS) went public in 1996 at $4 a share. Since then, the stock has been a model of consistency. It has a high degree of safety, a 25-year dividend increase streak, a 44 year history of record-high profits, and a stock buyback program.

This is one of the rare buying opportunities for investors to get into this quality name at a good valuation.

FDS moves up from 15th to 11th in the Conservative Growth Portfolio Power Rankings.

Power Rankings

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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