The Facts Are In, This Stock Is Worth The Money
A few days ago IHS Markit (NYSE:INFO) emerged as a quality buy for its value, growth and dividend so it is no surprise to me today the same is true for Factset Research Systems (NYSE:FDS). The fiscal third-quarter results were a mixed bag if you believe the headlines but a deeper look reveals nothing not to like. Not only is this company growing, but its business is also accelerating. If you don't know, both companies are in the business of data, analystics, and services.
At the headline, Factset reported a top-line miss and bottom-line beat. Considering the company has beaten bottom-line results 88% of the time and top-line only 55% I’d say the results were exactly as expected but the devil is in the details. Looking at the details, the analysts were expecting revenue to grow 3.2%, what we got was 2.6% which I don’t think is too bad. Consensus for the bottom line was $2.44 or down -6.9% YOY, what we got was $2.86 ADJ and $2.63 GAAP. Both figures are more than $0.40 above consensus and up in the YOY comparison. I think that’s great.
The strength in numbers is due to three things. One, the company is growing; two, margins are expanding; and three, the company produced a successful price increase for the international segment of the business. Regarding growth, the total ASV (annual subscription value) + professional services grew 5% organically to outpace consensus by 0.6%. The net client-count grew by 55 to 5,743 (about 1.0%) while users grew just shy of 2.0%. In terms of margins, operating margins increased 30 basis points while adjusted-operating margins expanded by 150. As for prices, that’s self-explanatory, the company is getting more for its product.
The Outlook Is Good And Yet The Analysts Are Bearish
Factset issued new guidance but that, too, was a mixed bag. While revenue targets are a bit shy of the consensus mark, $1.485 to $1.49 billion versus consensus $1.49 billion, the EPS outlook is robust. The company upped its EPS target to $10.40-$10.60 versus the $10 consensus which begs the question, how soon will the analysts begin issuing their statements, price-target increases, and rating upgrades?
Oddly enough, the average rating on this stock is bearish. The catch is that only seven (7) of the seventeen (17) analysts following the stock rate it a sell, the remainder are firmly neutral. Considering today’s news (among other factors) I will be surprised if this situation doesn’t change and fairly soon.
Based on current consensus, the company is expected to deliver substantial growth this year and next. The only black spot in the outlook is that consensus for EPS in 2020 is mildly negative. The caveat is that consensus does not include the strength exhibited in today’s Q3 report, or the updated EPS guidance, which implies 6% YOY EPS growth. Extrapolating that further, the current consensus calls for high single-digit growth in 2021 that just got eclipsed by 2020 strength so those numbers will also need to be updated. Bottom line, I see a round of upgrades coming for Factset Research Systems.
A Dividend Aristocrat, Yes Indeed
If the growth outlook isn’t enough, FactSet also pays a dividend. The yield is low at 1.0% but everything else about it is excellent. For starters, FactSet is a Dividend Aristocrat which implies safe and secure payouts. The company has 21 years of consecutive increases and just raised the payout with the last declaration, it’s not too late to get on board. Looking forward, the payout ratio (a low 30%), the 5-year CAGR (about 13%), the fortress balance sheet, and the outlook for growth all but ensure future distribution increases.
The Technical Outlook: Breaking Out To New Highs
The outlook for this stock is bullish and bullish in all-three time frames I follow. I like to use a multiple-time-frame approach that includes monthly, weekly, and daily price action and what I see in FDS a market moving up on all three charts. What this means for investors is a potentially large movement of secular proportions that could take the stock up by several multiples. Trading at 30X its forward earnings it’s a bit over-valued compared to the broad S&P 500 but still a good value in today’s market. How many other companies will grow revenue and earnings this year? Not that many.
Regardless, today’s move has the stock moving to new highs and confirming what I see in the charts. Now that the break-out is underway, assuming price action confirms the break, my targets are $340 and $360 in the near to the short-term.
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