FactSet Gains From Product Suite, Client Retention a Concern

On Dec 27, we issued an updated research report on FactSet Research Systems Inc. FDS.

FactSet recently reported mixed results for fiscal first-quarter 2018. While earnings came ahead of the Zacks Consensus Estimate, revenues missed the same. However, on a year-over-year basis, it registered growth on both the counts.

FactSet is bringing in new products across segments with an emphasis on financial services to expand its customer base. This approach is helping the company overcome macroeconomic challenges.

However, decreasing client retention ratio is a major concern for the company as a solid base of existing clients indicates stable revenues.

Notably, FactSet stock has gained 22.3% year to date, underperforming the 28.3% rally of the industry it belongs to.

Factors Influencing the Stock

FactSet, a provider of global online integrated data-related products and services for the investment community added 65 new clients in fiscal first-quarter 2018, which boosted its Annual Subscription Value (ASV). The company’s competitive pricing strategy has also been a key catalyst for ASV.

Notably, the Global Business Information market, which FactSet caters to, is expected to witness CAGR of 5.2% from 2017 to 2021, per technavio. We believe, the company’s core product suite, enriched by its acquired entities like BISAM, IDMS, Portware LLC, Code Red, Revere Data LLC, StreetAccount and others, will enable it to grab the growth opportunity.

However, the industry being a highly competitive one with players such as Bloomberg L.P., Thomson Reuters Inc. and S&P Global Market Intelligence, FactSet continues to face strong headwinds. Though it has a technological advantage, some of these competitors have greater financial, technical and marketing resources and we expect competition to intensify in the future.

Additionally, declining client retention ratio is a negative for the company’s near-term performance. The company’s client retention ratio in the first quarter was 90%, tanking 300 basis points (bps) from the year-ago quarter and 100 bps from the previous quarter. This might drag down the company’s top line going ahead.

Zacks Rank and Stocks to Consider

Factset has a Zacks Rank #3 (Hold).

Some of the better-ranked stocks in the broader technology sector are NetApp, Inc. NTAP, and IPG Photonics Corporation IPGP, both sporting a Zacks Rank #1 (Strong Buy), and Intel Corporation INTC) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS growth rate for Intel, NetApp and IPG is projected to be 8.42%, 11.34% and 12%, respectively.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 – Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 – Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

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

To read this article on Zacks.com click here.