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FactSet's Firm Financial Footing

Posted: Mar 19, 2009 14:53 PM by Ryan C. Fuhrmann

Tickers in this Article: JRJC, TRI, C, GS, FDS

FactSet Research Systems (NYSE:FDS) bills itself as a provider of financial information systems for the "global investment community". It's no secret that this community has been ravaged by one of the most precipitous stock market collapses in modern times, but you wouldn't know that by looking at FactSet's business trends. On March 18 it reported second-quarter results that were stellar by nearly every measurable aspect.

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Quarterly Recap
Total quarterly revenue improved 11.6% to $156.5 million. U.S.-based revenue grew 10% to $107 million, while international revenue moved ahead 16% when backing out the effects of currency movements. Overseas business consists of Europe, which reported $40 million in sales, and the Pacific Rim, which weighed in at $10 million.

FactSet lost about 4% of its users over the quarter, which isn't surprising given the dramatic fall in the stock market and underlying difficulties of financial clients, which range from investment banks such as Goldman Sachs (NYSE:GS) to money center banks including Citigroup (NYSE:C).

Growing Annual Subscription Value
Despite the industry turmoil, FactSet was able to grow annual subscription value (ASV), which it defines as "revenue for the next 12 months from all subscription services currently being supplied to our clients". The company uses ASV to gauge market share gains and overall top-line trends.

ASV grew 8% to $623 million, indicating to management it did gain share over competitors like Bloomberg and Thomson Reuters (NYSE:TRI), the latter of which is 10 times larger than FactSet on a market capitalization basis. Given its smaller market position, management believes it can grow another 10 times and continue its double-digit sales and earnings growth. For the quarter, earnings grew 20.3% to 71 cents per share as cost controls initiated last summer began to take hold. (For more, see Stock-Picking Strategies: Growth Investing.)

Bottom Line
FactSet isn't growing as rapidly as Chinese rival China Finance Online (Nasdaq:JRJC), which recently reported a doubling of sales during its most recent quarter. However, FactSet's business is much more established, diversified across more than 2,000 clients and growing "in the midst of a once-in-a-lifetime set of difficult economic conditions". At a mere 15 times forward earnings expectations for the fiscal year that ends in August, the shares are very reasonably valued considering the solid chance that growth will only accelerate once investors become bullish once again.

Read about buying on forward earnings expectations in Investment Valuation Ratios: Price/Earnings Ratio.

By Ryan C. Fuhrmann

Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.

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