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FactSet Research Systems: Never Bought, Always Regretted

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The FactSet Research Systems (NYSE:FDS) banal has been an awesome capacity instrumentality complete nan past 20 years successful which nan stock value has risen by much than 2,000 percent, while nan S&P 500, for example, has only risen by 360 percent. In nan past 15 years alone, income grew by 220 percent, EPS roseate by arsenic overmuch arsenic 382 percent, while nan number of shares outstanding fell by complete 22 percent. And moreover though nan dividend output is beneath 1.5 percent connected average, semipermanent dividend investors person gotten their money's worth. For example, nan output connected costs for a acquisition 20 years agone is almost 19 percent; for a acquisition 15 years ago, almost 7 percent; and for a acquisition 10 years ago, almost 4 percent.

ChartData by YCharts

Unfortunately, acold excessively fewer investors person FactSet connected their minds. On the 1 hand, nan guidance acts conservatively and soberly successful an situation that has not been carried by immoderate hype successful caller years.

FactSet is simply a financial information and analytics institution that offers a scope of products and services to master investors. FactSet's business exemplary is based connected providing high-quality financial information and analytical devices to its clients, i.e., chiefly master investors specified arsenic hedge funds, finance banks, plus managers, and organization investors. Private investors, therefore, hardly travel straight into interaction pinch nan company's financial data, analytical tools, and accusation services successful their mundane lives.

On nan different hand, nan institution was excessively costly for worth investors, pinch an mean adjusted PE ratio of complete 20, and excessively unattractive for cash-flow-oriented dividend investors, pinch a dividend output beneath 1.5 percent. I count myself successful nan second group. And what tin I say, whenever I decided to hold for a much favorable opportunity, nan stock value pulled away.

Growth momentum remains intact

FactSet's maturation momentum remains intact. Despite a challenging macroeconomic situation for companies successful nan financial and finance manufacture successful caller quarters, FactSet reported beardown financial results. For example, gross accrued by 21 percent successful 4Q 2022. ASV (Average Subscription value) positive Professional Services grew by 9.3 percent. This capacity was instantly followed by a beardown 1Q 2023. Revenues accrued by almost 19 percent from USD 424 cardinal to USD 504 million, of which integrated maturation was 8.3 percent. Organic ASV positive Professional Services grew by 8.8 percent. FCF accrued from USD 64 cardinal to USD 88.6 million, an summation of 37 percent.

A mates of further highlights guidelines out. I person already mentioned nan macroeconomic environment. Investors person pulled a batch of superior retired of nan markets and made life much difficult for plus guidance companies. In this respect, I would person expected customer retention astatine FactSet to weaken. I would besides person thought it imaginable that FactSet would person to little its prices, arsenic plus managers whitethorn now salary much attraction to their budgets. At nan aforesaid time, FactSet is exposed to beardown title and invention unit and competes pinch its larger rivals Bloomberg aliases Eikon (Thomson Reuters).

However, FactSet's business exemplary and products and services are highly sticky. Thus, location were nary customer churns successful 1Q 2023. ASV retention, i.e., ASV retained from clients complete nan past 12 months, remained supra 95 percent. Client retention, i.e., nan percent of clients retained complete nan past 12 months, besides remained astatine 92 percent. I was moreover much impressed that nan personification count accrued by 12 percent YoY. The customer count, i.e., companies subscribing to FactSet services pinch an ASV greater than USD 10,000, accrued by 13 percent. And each this did not moreover travel astatine nan disbursal of profitability. The operating separator accrued by 517 bps YoY from 28.9 percent to 31.1 percent (!).

The semipermanent early is besides promising

FactSet's prospects are besides bully to very good. On nan 1 hand, nan institution has shown that it tin compete good pinch acquisitions specified arsenic nan caller USD 1.9 cardinal acquisition of CUSIP Financial services and its innovative products. For example, my workfellow Deep Tech Insights provided awesome insights connected nan taxable of Big Data and nan ESG manufacture connected nan bully positioning astir partnerships and maturation prospects successful his Seeking Alpha article. In addition, FactSet has rate of 470 cardinal that it tin usage for further inorganic maturation aliases indebtedness reduction.

Another important facet could beryllium nan usage of AI. On nan 1 hand, AI mightiness beryllium capable to cod nan respective information itself, truthful that AI devices for illustration OpenAI tin compete pinch FactSet. However, I don't deliberation that is likely. In this respect, it is important to understand that nan worth of FactSet is not only successful nan magnitude of information but successful nan processing and visualization. More likely, FactSet itself will usage AI to cod nan data. This, successful turn, could trim nan astir important costs factor, namely staff:

FactSet Research Systems First Quarter 2023 Adj. Operating Income Walk

FactSet Research Systems First Quarter 2023 Adj. Operating Income Walk (Investor relations)

The aged communicative astir valuation

Well, truthful why not conscionable return a header and put successful FactSet? It's nan aged problem. FactSet is simply a very expensively weighted company. With an mean P/E of 28 and a price-to-cash travel ratio of conscionable nether 21, nan banal has been rather expensively weighted complete nan past 10 years. Currently, it has moved moreover further into overvaluation territory pinch a P/E ratio of almost 40 (adjusted 27). Conversely, analysts judge nan institution tin proceed to turn and execute an EPS of almost USD 18 successful 2026. Based connected nan existent stock value of USD 431, this would beryllium a guardant PE ratio of 23. In my view, however, this imaginable is not charismatic capable for an investment. Chart

Data by YCharts

The aforesaid applies to nan dividend yield, arsenic already indicated. FactSet is simply a coagulated dividend payer, having accrued quarterly distributions astatine sometimes respectable rates complete nan past 22 years. The quarterly dividend has risen from USD 0.06 successful 2000 to USD 0.89. Over nan past 10 years, FactSet has raised its dividend by an yearly mean of 11.08 percent. Looking only astatine nan past 5 years, nan yearly mean maturation was still 9.21 percent. Currently, nan dividend output is 0.83 percent. While location is room for early increases, arsenic nan payout ratio of 32 percent connected profit and 25 percent measured by free rate travel is comparatively low, nan existent output is good beneath nan semipermanent corridors.

Dividend Yield 5Y and 10Y

Dividend Yield 5Y and 10Y (Seeking Alpha)

Conclusion

The FactSet stock has shown a much than coagulated capacity complete nan past decades owed to rising stock prices and a dividend argumentation positive stock buybacks that use nan shareholders successful nan agelong run. There are bully reasons to judge that nan institution will proceed to beryllium successful successful nan years to come.

FactSet is increasing moreover successful difficult macroeconomic times. The institution is very well-positioned and could use from AI innovations. However, nan existent valuation of nan stock already seems to see nan early maturation potential. For this reason, I still see nan FactSet shares excessively costly to buy. They simply do not fresh into my finance profile. For investors who do not person problems pinch precocious valuations, a savings scheme could beryllium a bully measurement to build up a position complete time.

This article was written by

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Runner of nan TEV Blog | Private InvestorI americium a semipermanent oriented investor and successful my early thirties. I clasp a rule grade and a doctorate successful rule and emotion investing and talking astir my and others' investments. I regularly constitute astir my investigation and investments connected various investor platforms and nan TEV Blog. **My articles correspond my sentiment only and successful nary measurement represent master finance advice. It is nan work of nan scholar to behaviour their owed diligence and activity finance proposal from a licensed master earlier making immoderate finance decisions.**

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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