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I was looking through the list of top % gainers on the NYSE today and saw that an 'old favorite' of mine from this blog, FactSet Research Systems, Inc. (FDS) was on the list. In fact, FDS closed at $46.23, up $3.64 or 8.55% on the day. I do not have any shares or options on this stock.
I first posted FDS on Stock Picks Bob's Advice on June 17, 2003, when it was one of the first selections on this blog, trading at $40.39/share. Adjusted for a 3:2 stock split on February 7, 2005, this pick was actually selected at a price of $26.93/share. Thus, with the stock closing at $46.23, this represents an appreciation of $19.30 or 71.7% since I first 'picked' the stock here on the blog.
Almost exactly a year ago, on May 18, 2005, I again posted FactSet (FDS) on Stock Picks Bob's Advice, when it was trading at $31.53. With today's close at $46.23, the stock has appreciated $14.70 or 46.6% since posting in the past year.
And today, with the stock once again on the move, I have posted FDS on Stock Picks for the third time! Let's take a closer look at this company and let me show you why I believe it deserves another review!
1. What exactly does this company do?
According to the Yahoo "Profile" on FactSet Research, the company
"...supplies economic and financial data and analytics to the investment community worldwide. The company’s applications provide users access to company analysis, multicompany comparisons, industry analysis, company screening, portfolio analysis, predictive risk measurements, alpha and backtesting, portfolio optimization, and real-time news and quotes."
2. What about the latest quarterly results?
On March 21, 2006, FactSet reported 2nd quarter 2006 results. Revenue for the quarter came in at $93.7 million, up 23% from the prior year's $76.5 million and also beating consensus of $92.3 million expected. Net income grew to $19.2 million or $.38/share, up from $17.2 million or $.34/share the prior year. This also beat expectations of $.37/share as reported. In addition, the company raised guidance on the upcoming quarter for revenue, with $95-$97 million now expected, up from analysts' expectations of $94.9 million.
Thus from my perspective this quarterly report did everything right: reporting increased revenue, increased earnings, exceeding expectations and raising guidance. Something I call the "trifecta plus"!
3. How about longer-term results?
Reviewing the "5-Yr Restated" financials on FDS from Morningstar.com, we find first of all that revenue growth has been uninterrupted with $167.6 million in 2001 growing to $312.6 million in 2005 and $345.4 million in the trailing twelve months (TTM).
Earnings during this period have also steadily grown from $.64/share in 2001 to $1.43/share in 2005 and $1.52/share in the TTM.
An added bonus is the fact that the company pays a dividend which has also been steadily increased from $.09/share in 2001 to $.20/share in 2005. Interestingly, the company has been retiring shares with 51 million in 2002, dropping to 48 million in 2005 (although rebounding slightly to 49 million in the TTM).
Free cash flow has been positive with $66 million reported in 2003, $45 million in 2004, $72 million in 2005 and $99 million in the TTM.
The balance sheet also looks solid with $90.2 million in cash which by itself can pay off both the $66.4 million in current liabilities and the $18.0 million in long-term liabilities comgined. Calculating the 'current ratio' gives us a total of cash and other current assets at $157.4 million, which when compared to the $66.4 million of current liabilities results in a current ratio of 2.37.
4. What about some valuation numbers on this stock?
Reviewing Yahoo "Key Statistics" on FactSet Research, we find that this is a mid-cap stock with a market capitalization of $2.25 billion. The trailing p/e is a bit rich at 30.29, with a forward (fye 31-Aug-07) p/e of 25.97. The PEG is also a bit rich with a ratio of 1.62.
The Fidelity.com eresearch website demonstrates that in terms of the Price/Sales ratio, FDS is also richly priced with a ratio of 6.3 leading the "Information/Delivery Services" industrial group. Following FactSet is Wright Express (WXS) at 4.9, Jupitermedia (JUPM) at 4.4, Alliance Data Systems (ADS) at 2.6 and DST Systems at 1.8. By this measure as well, FDS is priced richly.
Returning to Yahoo, we find that there are 48.68 million shares outstanding with 37.61 million that float. As of 4/10/06, there were 2.32 million shares out short representing 5.6% of the float or 8.2 trading days of volume. I believe any short interest over 3 days is significant and may contribute to a "squeeze" of the short sellers.
As noted earlier, the company pays $.20/share in dividends yielding 0.5%. Also as noted above, the company last split its stock in a 3:2 fashion.
5. What about a chart?
Looking at the "Point & Figure" chart on FDS from StockCharts.com:
We can see that this stock actually was trading lower from $28/share in April, 2002, to a low of $14/share in August, 2002. Since bottoming at that time, the stock has actually been trading stronger, first breaking resistance at $17, and now moving sharply higher to close at $46.23, which appears to be a new high for the stock.
6. Summary: What do I think?
Let's review some of the things that I have discussed above on this stock. First of all, the stock moved nicely higher today on an upgrade from Piper Jaffray. The latest quarter showed everything I like to see in a quarterly report: revenue growth, earnings growth, beating expectations and raising guidance.
The Morningstar.com report is also quite nice with steady revneue and earnings growth the past few years. The company even pays a small dividend and has been increasing it each year. In addition, the company has reduced the number of shares outstanding which is also an important detail of this analysis.
The company is generating an increasing level of free cash flow and has a strong balance sheet.
Valuation wise, the p/e is above 30, the PEG is just over 1.5, and the price/sales is just a little over 6, making it the priciest stock in its industrial group. On a postiive note the relatively large amount of short interest may be supportive and may even be driving the stock higher in the face of solid earnings. And finally, the stock chart looks strong and does not appear overextended.
I like FDS but it is not a 'bargain'. Any blemish could find this stock correcting. However, there are few other stocks with as consistent a growth bias as FactSet and this has been an excellent pick for me as demonstrated by the price appreciation from 2003 and 2005. Unfortunately I don't own any of these shares!
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