FactSet Survives Market Turbulence, Boosts Buyback

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FactSet Research Systems (NYSE: FDS) has done a good job of catering to financial institutions that have benefited dramatically from the rising stock market in recent years. With its research and other capabilities, FactSet puts its clients in a better position to take advantage of opportunities when they arise, and that's led to big successes for the financial information provider in recent years. Yet with recent market turbulence, some fear that financial institutions might get more cautious about their spending in a way that could hurt FactSet's future results.

Coming into Tuesday's fiscal second-quarter financial report, FactSet shareholders didn't generally think that volatility would hurt the company's performance right now, but they wanted reassurance that conditions were still favorable. FactSet provided that reassurance and more, with accelerating growth that points to even better prospects down the road. Let's look more closely at FactSet Research Systems to see what's ahead for the research provider.

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FactSet hits the gas

FactSet's fiscal second-quarter results sustained the company's solid performance in recent quarters. Sales were higher by 14% to $335.2 million, which was a bit faster than what most investors had looked to see from the financial information provider. Adjusted net income of $84.3 million was higher by 17% from year-ago levels, and the resulting adjusted earnings of $2.12 per share topped the consensus forecast among analysts following the stock for $2.06.

Tax reform dealt FactSet a one-time blow that it expects to overcome in the future. A one-time charge of $22.9 million came primarily from the deemed repatriation of foreign earnings, resulting in a temporary boost to its tax rate. However, the company believes that it will see lower taxes throughout fiscal 2018 that will offset that one-time cost.

Fundamentally, FactSet looks to be firing on all cylinders. Overall organic revenue was up nearly 6%, with analytics products and content and technology solutions driving the way higher. Annual subscription value (ASV) climbed 13% to $1.35 billion, with organic growth making up 5.8 percentage points of the rise. The buy side of FactSet's business once again outperformed slightly, with growth of 6% compared to just less than 5% for sell-side clients. International growth outpaced FactSet's domestic operations, with ASV internationally climbing 23% compared to 9% growth in the U.S. market.

FactSet kept bringing in clients as well. Total client count was just shy of 4,900, up by almost 2% in the past quarter. User counts rebounded slightly to almost 88,650, and retention rates were more than 95% of subscription value and about 89% of total clients.

CEO Phil Snow was happy with the results. "We accelerated our ASV growth rate," Snow said, "and increased market share with global wins across our product portfolio." The CEO also pointed to the work done to date in integrating acquisitions into the FactSet fold and anticipates further work on that front in the future.

Can FactSet keep climbing?

FactSet has high hopes for the remainder of the year. One of Snow's priorities is to strengthen the company's suite of products, aiming to keep up with the rising tide of technology that has made it easier to obtain and analyze information than ever before. The company's balance-sheet strength should give it flexibility in how best to pursue opportunities for growth.

FactSet made some changes to its full-year fiscal 2018 guidance. The company still expects sales between $1.34 billion and $1.36 billion, but it added $0.10 to its range for adjusted earnings, now seeing $8.35 to $8.55 per share on the bottom line. The new guidance incorporates the ongoing benefit from lower tax rates while excluding the one-time charge under the new law's provisions.

Investors can expect more activity on the buyback front. FactSet authorized an additional $300 million for share repurchases, bringing the total amount available to more than $430 million. The financial services provider said it expects to buy back about $325 million to $375 million in stock in the next 12 months, with the roughly $100 million increase in annual purchase rate coming from tax-reform benefits. FactSet bought 420,000 shares for just under $82 million during the fiscal second quarter.

FactSet investors didn't seem all that excited about the news, and the stock fell 2% in early-morning trading right after the market opened following the announcement. Nevertheless, FactSet has held up well so far in the face of rising challenges, and bullish shareholders are hopeful that the company will find a way to sustain its strength in the months to come.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.