FDS Stock Study (8-12-24)

Posted by Mark on October 3, 2024 at 06:38 | Last modified: August 12, 2024 11:50

I recently did a stock study on FactSet Research Systems Inc. (FDS) with a closing price of $403.03. Previous study is here.

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 82% 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.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 8.8% and 9.4%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’17 and ’22. Five- and 10-year EPS R^2 are 0.88 and 0.87, respectively, and Value Line gives an impressive Earnings Predictability score of 100.

Over the past decade, PTPM trails peer and industry averages while ranging from 24.1% in ’22 to 40.9% in ’16 with a last-5-year mean of 27.9%. ROE leads peer averages but trails the industry while ranging from 27.4% in ’23 to 60.3% in ’16 with a last-5-year mean of 39.0%. Debt-to-Capital is less than peer and industry averages despite increasing from from 0% in ’14 to 53.2% in ’23 with a last-5-year mean of 51.4% (CGS acquisition from S&P Global).

Quick Ratio is 1.1 and Interest Coverage is 10.6 per M* who assigns a “Standard” rating for Capital Allocation and a “Narrow” Economic Moat. Value Line gives an A grade for Financial Strength (down from A+ in previous study).

With regard to sales growth:

• YF projects YOY 5.0% and 5.2% for ’24 and ’25, respectively (based on 18 analysts).
• Zacks projects YOY 4.9% and 4.5% for ’24 and ’25, respectively (8 analysts).
• Value Line projects 6.8% annualized growth from ’23-’28.
• CFRA projects 5.3% YOY and 5.8% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 5.4%/year and its own 5-year estimate of “mid to high single digit percentage.”

My 4.0% per year forecast is below the range.

With regard to EPS growth:

• MarketWatch projects 7.9% and 9.7% per year for ’23-’25 and ’23-’26, respectively (based on 21 analysts).
• Nasdaq.com projects 9.0% and 8.7% per year for ’24-’26 and ’24-’27, respectively (8/6/2 analysts for ’24/’26/’27).
• Seeking Alpha projects 4-year annualized growth of 10.7%.
• YF projects YOY 12.0% and 7.1% for ’24 and ’25, respectively (17), along with 5-year annualized growth of 8.3%.
• Zacks projects YOY 12.2% and 7.2% for ’24 and ’25, respectively (9), along with 5-year annualized growth of 10.3%.
• Value Line projects 8.6% annualized growth from ’23-’28.
• CFRA projects 14.0% YOY and 10.6% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 10.0%.
• M* projects long-term growth of 11.7% per year.

My 8.0% per year forecast is below the long-term-estimate range (mean of five: 9.9%). Initial value is ’23 EPS of $12.04/share instead of 2024 Q3 $12.26 (annualized).

My Forecast High P/E is 30. Over the last decade, high P/E trends up from 26.3 (’14) to 39.4 (’23) with a last-5-year mean of 39.2 and a last-5-year-mean average P/E of 32.6. I am near bottom of the range [’14 and ’16 (21.9) are less].

My Forecast Low P/E is 20. Over the last decade, low P/E trends up from 20.5 (’14) to 31.4 (’23) with a last-5-year mean of 26.9. I am forecasting near bottom of the range [16.6 (’16) and 19.4 (’15) are less].

My Low Stock Price Forecast (LSPF) is $300.00. Default ($265.20) based on initial value from above seems unreasonably low at 34.2% (32.3%) less than the previous close (52-week low). My [arbitrary] forecast is 25.6% and 23.4% less, respectively.

Payout Ratio (PR) over the last 10 years ranges from 23.0% in ’16 to 35.4% in ’18 with a last-5-year average of 31.2%. I am forecasting conservatively at 23.0%.

These inputs land FDS in the HOLD zone with a U/D ratio of 1.2. Total Annualized Return (TAR) is 6.4%.

PAR (using Forecast Average–not High–P/E) is 2.8%, which is lower than the current return on T-bills. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 90 studies (my study and 31 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 6.9%, 10.0%, 35.3, 25.3, and 31.0%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 32.0 is greater than MS (30.3) and much greater than mine (25.0).

MS high / low EPS are $20.55/ $12.63 versus my $17.69 / $13.26 (per share). My high EPS is less due to a lower growth rate. Value Line’s $22.00 is greater than both.

MS LSPF of $336.60 implies Forecast Low P/E of 26.7: greater than the above-stated 25.3. MS LSPF is 5.3% higher than the default $12.63/share * 25.3 = $319.54 resulting in more aggressive zoning. MS LSPF is also 12.2% greater than mine.

With regard to valuation, PEG is 2.4 and 3.5 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.93.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR of 12.8%: 6.4%/year greater than mine.

FactSet caught my eye because of its textbook visual inspection and price near 52-week low. Qualitatively, the Value Line report ends with “we have little reason to recommend these shares at this time.” CFRA does not at all agree.

Per U/D, FDS is a BUY under $351. BI TAR criterion is met ~ $265/share given a forecast high price of ~ $530.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).