FactSet Tops Q1 Earnings and Revenue Estimates; Reaffirms 2021 Outlook

FactSet, which provides financial analytics and services to the investment community worldwide, reported better-than-expected earnings in the first quarter, largely driven by higher sales of analytics and content & technology solutions.

The Norwalk-based software company said its earnings per share jumped over 11% over the past year to $2.88, beating market expectations of $2.75. FactSet revenue climbed about 6% to $388.2 million from the same period a year earlier, beating the Wall Street estimate of $387.3 million.

“Over the next five years, we expect FactSet to organically grow revenue in the mid-single-digit percent range. We expect growth in the firm’s analytics software offerings, data feeds, and wealth management to be faster than the firm’s average. We expect FactSet’s core desktop revenue to be flat or grow slightly as pressures on active asset manager budgets remain,” said Rajiv Bhatia, equity analyst at Morningstar.

“FactSet’s GAAP operating margin in fiscal 2019 was 30.5% and in 2020 fell to 29.4% due to non-recurring items. Looking ahead we expect operating margins in fiscal 2021 to be similar to the 30.5% seen in fiscal 2019 and improve to the 34%-35% range within five years. With FactSet’s strong cash position, we expect the company to look at acquisitions but valuations could prove challenging. Historically, FactSet’s operating margins have declined from acquisitions as the companies FactSet acquires are typically sub-scale,” Bhatia added.

FactSet forecasts organic ASV plus professional services to increase between $55 million and $85 million over fiscal 2020, GAAP revenue in the range of $1,570 million and $1,585 million and GAAP operating margin is expected to be in the range of 29.5% and 30.5%. The research company expects GAAP diluted EPS between $10.05 and $10.45 and adjusted diluted EPS in the range of $10.75 and $11.15.

FactSet shares closed 4.14% lower at $332.65 on Monday. However, the stock is up over 20% so far this year.

“What to do with FactSet shares: Hold on to what you own if you believe Annual Subscription Value (ASV) guidance is conservative and that the company can deliver on its multi-year investment initiative. Although execution at the company has been very good so far, we remain neutral due to valuation,” said Hamzah Mazari, equity analyst at Jefferies.

FactSet Stock Price Forecast

Nine analysts who offered stock ratings for FactSet Research in the last 3 months forecast the average price in 12 months at $313.57 with a high forecast of $350.00 and a low forecast of $269.00. The average price target represents a -5.74% decrease from the last price of $332.65. From those nine equity analysts, none rated “Buy”, five rated “Hold” and four rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $278 with a high of $413 under a bull scenario and $159 under the worst-case scenario. The firm currently has an “Underweight” rating on the financial data and software company’s stock.

“Annual Subscription Value (ASV) modestly decelerated in the quarter as some deals were pushed out. The guidance was maintained, which calls for a continued deceleration of ASV for F’21, as well as only 1% EPS growth at the midpoint. We raise our price target to $278 but remain UW as valuation is elevated on a growth-adjusted basis,” noted Toni Kaplan, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. UBS raised the stock price forecast to $336 from $313. Deutsche Bank upped their price objective to $315 from $293 and gave the stock a “hold” rating in September. Wells Fargo & Company upped their price objective to $310 from $280 and gave the stock an “equal weight” rating. At last, Raymond James reaffirmed a “sell” rating on shares of FactSet Research Systems.

Analyst Comments

“We believe FactSet’s (FDS) multiple is at risk given our view that revenue growth does not accelerate and margin expansion stalls. We prefer other stocks in our Analytics coverage that offer better value on a growth-adjusted basis,” Morgan Stanley’s Kaplan.

“While we view FDS as being one of the least exposed to COVID-19 out of our Business Services coverage, market conditions could be challenged, leading to lower-than-normal growth. We assume a CAGR (’19-’24E) of 5% for revenues with adj. operating margins of 33% in 2024.”

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