Shares of FactSet Research Systems Inc. FDS have been on the rise since it reported its first-quarter fiscal 2017 results. To some investors, choosing the stock may appear to be a no-brainer because right after an earnings release, a company is almost always on investors’ radar. So, the period following earnings releases is often marked by high market activity. Moreover, indicators of a stock’s bullish run include a rise in its share price and a continued uptrend in estimates.
FactSet reported its quarterly numbers on Dec 20, following which its shares have gained over 5% so far. The company reported adjusted earnings per share of $1.75, which surpassed the Zacks Consensus Estimate of $1.70 as well as the guided range of 1.68 to $1.72 (mid-point $1.70). Moreover, adjusted earnings improved 18.2% on a year-over-year basis.
FactSet’s revenues of $288.1 million increased 6.5% from the year-ago quarter but missed the Zacks Consensus Estimate of $289.3 million. As FactSet’s revenues missed the consensus mark by just a million dollars, we opine that it will be unfair to say that the company’s top-line results were weak.
FactSet witnessed better-than-expected growth across products and geographic regions, which aided quarterly revenues. Also, synergies from the Portware acquisition contributed to revenue growth.
An encouraging top- and bottom-line guidance for the second quarter, above the respective Zacks Consensus Estimate, also helped in boosting investors’ confidence about the company’s future prospects.
Upward Estimate Revisions
In the last 30 days, the Zacks Consensus Estimate for the current quarter and fiscal 2017 witnessed upward revisions. For the current quarter, the Zacks Consensus Estimate is currently pegged at $1.80 per share, up 9 cents from earnings of $1.71 per share projected 30 days ago. Similarly, the Zacks Consensus Estimate for fiscal 2017 is currently pegged at $7.27 per share compared with $7.02 projected 30 days ago.
Other Driving Factors
FactSet is one of the leading providers of online integrated data-related products and services for the investment community. According to ReportsnReports, the Global Business Information market is expected to grow at a CAGR of 5.15% from 2014 to 2019. FactSet, being one of the key data providers, is expected to gain a competitive edge through its technological know-how and increasing share in new markets.
Notably, FactSet has a consistent record of returning value to shareholders in the form of dividend and share repurchases. In fiscal 2016, the company spent $473.4 million in the form of share repurchases and dividends.
Keeping with this strategy, FactSet purchased approximately 505K shares for $79.3 million under its existing share repurchase authorization during the last reported quarter. At quarter-end, the company had $117.7 million remaining under its share repurchase authorization.
Apart from this, during first-quarter fiscal 2017, FactSet completed the repurchase of $120 million worth of common stock under the Accelerated Share Repurchase agreement entered on Jul 1, 2016. Such shareholder-friendly initiatives not only boost investor confidence in the stock but also drive bottom-line growth.
FactSet’s persistent focus on product innovation across segments, with an emphasis on financial services to expand the customer base, has helped the company stay afloat amid the current macroeconomic challenges. Moreover, the company’s acquisitions of Portware, Revere Data, Matrix Data and Code Red will enhance its product suite and help it to evolve as a global financial database company. It will also help FactSet to maximize value for its partners and provide an exclusive content set.
Furthermore, the company is witnessing growth in ASV due to robust client additions. We believe that a growing customer base, high client retention rate (95% of ASV) and a competitive pricing strategy will boost revenues over the long haul.
Going forward, regular share buybacks will support the bottom line and boost shareholders’ value.
Bottom Line
Looking at these positives, we consider that FactSet is one such technology stock that deserves a place in investors’ portfolio.
Notably, the stock has been clocking solid returns over the last one year and has gained approximately 6.9%, outperforming the Zacks categorized Business Information Services industry's return of 1.34%.
FactSet also delivered positive earnings surprises in three out of the last four quarters with an average beat of 1.9%.
Moreover, combined with other attractive features like high return on equity (ROE) and high return on assets (ROA), the stock looks very attractive. While its ROE indicates that the company is reinvesting its cash at a high rate of return, ROA is the profit that it earns for every dollar of its assets. FactSet currently trades at a ROE of 51.9%, much higher than the peer average of 15.9%. Notably, the company has an ROA of 26.4% compared with the peer average of just 8.8%.
Hence, we believe that there is still much momentum left in this Zacks Rank #2 (Buy) stock, which is quite evident from its VGM Style Score of “B” and long-term earnings growth rate of 10.7%.
The stock has grabbed the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we perceive that investing in this stock will yield strong returns in the short term.
Other Stocks to Consider
Other stocks worth considering in the broader technology sector are NVIDIA Corporation NVDA, Western Digital Corporation WDC and Control4 Corporation CTRL, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NVIDIA, Western Digital and Control4 have a long-tern expected earnings growth rate of 10.3%, 1.8% and 17.5%, respectively.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment