FDS Stock Study (5-15-23)

I recently did a stock study on FactSet Research Systems Inc. (FDS) with a closing price of $398.36.

M* writes:

     > FactSet provides financial data and portfolio analytics to the
     > Global investment community. The company aggregates data from
     > third-party data suppliers, news sources, exchanges, brokerages,
     > and contributors into its workstations. In addition, it
     > provides essential portfolio analytics that companies use to
     > monitor portfolios and address reporting requirements. Buy-side
     > clients account for 83% of FactSet’s annual subscription value.
     > In 2015, the company acquired Portware, a provider of trade
     > execution software. In 2017, it acquired BISAM, a risk
     > management and performance measurement provider. In 2022,
     > it completed its purchase of CUSIP Global Services.

This medium-size company has grown sales and earnings at annualized rates of 8.5% and 10.0%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for EPS declines in ’17 and ’22. PTPM has trailed peer and industry averages while falling from 31.6% in ’13 to 24.1% in ’22. The last-5-year average is 27.5%.

ROE has trailed the industry while leading peers over the last decade tracing an “inverse-U” pattern with a last-5-year average of 43.2%. Debt-to-Capital has been lower than peer and industry averages while increasing from 0% in ’13 to 62.5% in ’22 with a last-5-year average of 51.2%.

Much of the debt results from the CGS acquisition from S&P Global. Interest Coverage is 10.5 and Quick Ratio is 1.75. M* assigns a Standard rating for Capital Allocation while Value Line gives an A+ grade for Financial Strength.

I forecast long-term annualized sales growth of 5% based on the following:

• CNN Business projects 16.7% YOY and 10.6% per year for ’23 and ’22-’24, respectively (based on 13 analysts).
• YF projects YOY 13.1% and 7.0% for ’23 and ’24, respectively (18 analysts).
• Zacks projects YOY growth of 13.1% and 7.0% for ’23 and ’24, respectively (8).
• Value Line projects 8.3% annualized growth from ’22-’27.
• CFRA projects 14.0% YOY and 11.0% for ’23 and ’22-’24, respectively.
• M* offers a 2-year ACE of 9.9% per year along with its own analyst estimate of “mid to high single digit percentage” for the next 5 years.

I am forecasting below the range.

I forecast long-term annualized EPS growth of 9% based on the following:

• CNN Business projects 10.9% YOY and 10.6% per year for ’23 and ’22-’24, respectively (based on 13 analysts), along with 5-year annualized growth of 11.0%.
• MarketWatch projects annualized growth of 10.4% and 10.7% for ’22-’24 and ’22-’25, respectively (20 analysts).
• Nasdaq.com projects 10.1% and 9.5% for ’23-’25 and ’23-’26, respectively [8, 5, and 1 analyst(s) for ’23, ’25, and ’26].
• Seeking Alpha projects 4-year annualized growth of 10.6%.
• YF projects YOY 10.9% and 12.2% for ’23 and ’24, respectively (17), along with 12.5% per year for the next five years.
• Zacks projects YOY 8.9% and 9.4% for ’23 and ’24, respectively (8), along with 10.0% per year for the next five years.
• Value Line projects 9.2% annualized growth from ’22-’27.
• CFRA projects 13.5% YOY and 10.9% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 11.0%.
• M* projects long-term growth of 10.8% per year.

I am forecasting below the long-term-estimate range (mean of six: 10.7%).

My Forecast High P/E is 30. Over the last decade, high P/E has trended up from 25.1 to 48.3 (lowest value 21.9 in ’16). The last-5-year-average high P/E and average P/E are 38.1 and 31.7, respectively. I am forecasting below the latter.

My Forecast Low P/E is 20. Over the last decade, low P/E has trended up from 19.5 to 33.7 (lowest value 16.6 in ’16). The last-5-year average is 25.2 and the median over 10 is 20.6.

My Low Stock Price Forecast (LSPF) is the default value of $230.40. This is 41.1% less than the previous closing price and 21.7% less than the ’21 low.

Payout Ratio over the last 10 years has ranged from 23.0% in ’16 to 35.4% in ’18 with a last-5-year average of 32.1%. I am forecasting conservatively at 23.0%.

These inputs land FDS in the HOLD zone with an U/D ratio of 0.8. Total Annualized Return (TAR) is 6.7%.

PAR (using Forecast Average—not High—P/E) is 3.1%, which is lower than the current return on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the 6.7% instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 205 studies done in the past 90 days (48 outliers plus my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.1%, 9.7%, 33.0, 22.8, and 30.4%. I am lower across the board. Value Line projects a future average annual P/E of 30.0, which is higher than MS (27.9) and higher than mine (25.0).

With regard to other data, MS high and low EPS are $17.49/share and $9.78/share in contrast to my $17.72 and $11.52. My numbers may be higher due to recent quarterly growth. MS LSPF of $255.10 implies a Forecast Low P/E of 26.1 (versus the above-stated 22.8), is 10.7% greater than mine, and is 14.4% greater than the $9.78 * 22.8 = $222.98 default. This seems somewhat aggressive and emphasizes whatever MOS appears to back my study.

I would look to re-evaluate FDS under $305/share.