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FactSet Blows Out Q4 Estimates

Posted: Oct 02, 2007 15:11 PM by Glenn Curtis

Tickers in this Article: RTRSY, TOC, FDS

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This puts financial data companies such as FactSet Research Stystems (NYSE:FDS) in an enviable position. Its customers are loyal and dependant, and from an outside investor's standpoint dependency is a good thing. For primarily this reason, I like the company and I like the stock. But there's more to the story than just a loyal customer base. (For related reading, see What You Need To Know About Financial Statements.)

The Fact of the Matter
FactSet is coming off a terrific quarter (it's fiscal fourth quarter) - in the period ended August 31st, the company earned 60 cents per share on revenue of $129.5 million. That compares quite favorably with the 56 cents per share and roughly $128.7 million in revenue that analysts had been expecting. In addition, free cash flow came in at $43 million, which was up 45% over the comparable period a year ago.

The reason for the good numbers? Very simply, strong demand. The company's added 5% more users in the quarter, to a total of 35,000 from 33,300 at the beginning of the quarter.

A Set of Strengths
There are other things that I like about the company. For example, during the quarter the company repurchased 726,000 shares at a cost of roughly $46 million. The fact that the company is buying back stock around its 52-week high is in my mind a sign that even better times may lie ahead.

Management has said that it expects the company to generate between $131 million and $135 million in revenue in the first quarter. The analyst community had forecast revenues of $132.4 million. However, given the recent trends in its user volumes, the company is likely to beat the current consensus estimate of 57 cents per share in the quarter as well as the above-mentioned revenue estimate.

In the weeks ahead, I suspect that the sell side will be ratcheting up their 2008 earnings estimates, and disseminating upbeat research based upon the most recent quarterly results. Also, the stock produces a small dividend with a current yield of roughly 0.7%.

For all of these reasons, I think the stock exhibits a strong chance of continuing to climb upward in the coming year.

Possible Risks
In the interest of fairness, there are a couple of reasons why I could be wrong. The market could tank and therefore the demand for information and data could plummet. There are competing companies who offer similar tools and similar services - some of which are quite formidable, including Thomson (NYSE:TOC) and Reuters (Nasdaq:RTRSY).

Also, when a company like FactSet starts to blow out estimates, investors start expecting the same performance quarter after quarter. Any stumble could really hurt the company.

Bottom Line
I like FactSet. I like its products, and I like the stock. Based upon the current earnings outlook, despite its risks, the shares have decent upside potential.

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By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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