FactSet's Recurring Revenue Model Fares Well Amid Uncertain Macroenvironment

Equity Analyst

Rajiv Bhatia

FactSet has built an attractive subscription-based business providing data and analytics to the financial-services industry. FactSet is best known for its research solutions, which include its core desktop offering geared toward buy-side asset managers and sell-side investment bankers. Research is the largest component of the firm’s annual subscription value but is FactSet’s slowest-growing segment due to its maturity and pressures on asset managers. Beyond research, FactSet offers analytics and trading solutions (32% of firm ASV), which include portfolio analytics, risk management, performance reporting, trade execution, and order management.

FactSet's fastest-growing segment is its data feed business, known as content and technology solutions, which makes up 24% of ASV, including CUSIP Global Services. Users of CTS access data through feeds or application programming interfaces. Through repurposing its research and analytics capabilities, FactSet has built software products suitable for financial advisors.

FactSet’s adjusted operating margins have been range-bound (31%-36%) over the last 10 years as the firm continues to invest in new content. We believe this is prudent as investments have historically allowed FactSet to take share from competitors such as Thomson Reuters (now Refinitiv). In the future, we do expect some margin expansion as the company reduces its travel expenses and increases scale. FactSet has mostly grown organically and its acquisition strategy has mostly focused on adding an additional data source or software capability. In March 2022, FactSet completed its purchase of CUSIP from S&P Global for $1.9 billion, its largest acquisition to date. 

Given consolidation in the financial technology industry, FactSet could become an acquisition target. The industry has seen large deals such as LSE Group acquiring Refinitiv and S&P Global acquiring IHS Markit. We believe FactSet’s recurring revenue model would be attractive to potential acquirers, many of which have ample leverage capacity and valuable stock to use as currency.

Business Strategy & Outlook

Overall, we believe FactSet warrants a narrow economic moat rating based on switching costs. FactSet provides its integrated financial information and analytical applications across four workflows: research, analytics and trading, content and technology solutions, and wealth. 

FactSet's research workflow includes its core desktop offering used by buy-side and sell-side investment professionals to analyze companies, monitor markets, and generate ideas. FactSet’s desktops consist of aggregated data from third-party data suppliers, news sources, exchanges, brokerages, and its own contributions. FactSet faces competitors such as S&P Capital IQ, Refinitiv, and, at the high end, Bloomberg. While FactSet may have some proprietary data (supply chain, geographic revenue mix, and so on), we believe the proprietary data offerings can depreciate over time as suitable alternatives are developed. In addition, we believe some of these data sets fall in the “nice to have” rather than “mission critical” category for a subset of FactSet’s users. As a result, we view the primary moat source for its research desktops as switching costs. Once an analyst or company is familiar with a certain product, switching to a new product can be disruptive. 

FactSet's analytics and trading solutions include portfolio analytics, risk management, performance measurement and attribution, portfolio construction and trade execution/order management. We view FactSet’s closest competitors as MSCI, Qontigo (Deutsche Boerse), Aladdin (BlackRock), Bloomberg, and Charles River Development (State Street). Given the embedded nature of software systems in buy-side operations, the decision to switch providers is not taken lightly as implementations can be hard and complex. That said, MSCI has seen some competitive losses in part due to price. As a result, we believe switching costs are high enough to warrant a narrow moat.

CTS is FactSet’s data feed business. Rather than content being delivered through a desktop application, it is delivered through data feeds or through application programming interfaces. An example would be a quant fund using FactSet data to input into an algorithm. While FactSet has seen strong growth, competitors such as S&P have too, and while switching costs are real, we don’t believe they are strong enough to generate a wide moat. 

Wealth management has been a focus for FactSet in recent years as the company has been able to take its research content and repackage it for financial advisors. On the positive side, wealth managers are an attractive segment, given the limited fee pressure they face. On the negative side, wealth managers’ willingness and ability to pay is more limited, and as a result, wealth management desktops tend to be at a much lower price point versus institutional-focused research desktops. FactSet has seen some nice wins such as Merrill Lynch, but overall, we believe this segment remains competitive with established players such as Refinitiv and upstarts such as YCharts.

Narrow

Economic Moat

FactSet Research Systems

FactSet Research Systems Inc. (the Company or FactSet) is a global provider of integrated financial information, analytical applications and services for the investment and corporate communities. Since inception, global financial professionals have utilized the Company's content and multi-asset class solutions across each stage of the investment process. FactSet's goal is to provide a seamless user experience spanning idea generation, research, portfolio construction, trade execution, performance measurement, risk management, reporting, and portfolio analysis, in which the Company serves the front, middle, and back offices to drive productivity and improved performance. FactSet's flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in the organization. FactSet is focused on growing the business throughout each of its three segments, the Americas, EMEA (formerly known as Europe), and Asia Pacific. The Company primarily delivers insight and information through the workflow solutions of Research, Analytics and Trading, Content and Technology Solutions (CTS) and Wealth. FactSet currently serves financial professionals, which include portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors and corporate clients. FactSet provides both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and to execute trades. The Company combines dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, an open marketplace and digital portals and application programming interfaces (APIs). The Company’s revenue is primarily derived from subscriptions to products and services such as workstations, analytics, enterprise data, and research management. FactSet Research Systems was founded by Howard E. Wille and Charles J. Snyder in September 1978 and is headquartered in Norwalk, CT.

Earnings data Q1 2023

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Broadcom

Eli Lilly

Radian Group

Assurant

NCR Corporation

Walmart

No, you read this correctly – we're here to discuss overvalued value stocks to sell. Seemingly a contradiction in terms, a company that becomes overvalued by nature is no longer a value play.

7 Overvalued Value Stocks to Sell Before June 2023

Ashland Global Hlds

Expeditors International of Washington

First Merchants

Hamilton Beach Brands Hld

Houlihan Lokey

LyondellBasell Industries

ManpowerGroup

Materion

NACCO Industries

PepsiCo

QUALCOMM

Schwab US Dividend Equity ETF

Advanced Drainage Systems

Watts Water Technologies

All these stocks have at least five fiscal years of dividend growth history and come from the U.S. Dividend Champions List. They have an average increase of 8.2% and a median increase of 6.3%.

15 Upcoming Dividend Increases, Including 1 Dividend King

NORWALK, Conn, May 25, 2023 (GLOBE NEWSWIRE) -- FactSet (NYSE: FDS | NASDAQ: FDS) a global financial digital platform and enterprise solutions provider, announced today that it will release its financial and operating results for the third quarter fiscal 2023, ending May 31, 2023, on Thursday, June 22, 2023. FactSet will also host a conference call to discuss these results at 11:00 a.m. Eastern Time on Thursday, June 22, 2023.

FactSet Schedules Third Quarter 2023 Earnings Call

FactSet's financials have not indicated any pressure from financial sector volatility to date. Although management has made guidance more conservative as a result. Looking further, we find that FactSet is not particularly reliant on the banking sector as a whole and has no exposure to commercial banking.

FactSet: Financial Services SaaS That Is Still A Good Long-Term Buy

Investors interested in Business - Information Services stocks are likely familiar with INTERTEK GP (IKTSY) and FactSet Research (FDS). But which of these two stocks is more attractive to value investors?

IKTSY or FDS: Which Is the Better Value Stock Right Now?

NORWALK, Conn., May 04, 2023 (GLOBE NEWSWIRE) -- FactSet (NYSE: FDS | NASDAQ: FDS), a global financial digital platform and enterprise solutions provider, today announced that its Board of Directors approved a 10% increase in the regular quarterly cash dividend from $0.89 per share to $0.98 per share.

FactSet Increases Dividend

NORWALK, Conn., May 02, 2023 (GLOBE NEWSWIRE) -- FactSet (NYSE: FDS | NASDAQ: FDS), a global financial digital platform and enterprise solutions provider, today announced that Linda Huber, Chief Financial Officer of FactSet, will participate in a fireside chat at the Barclays Americas Select Franchise Conference at the Langham London in London, England on Tuesday, May 9, 2023.

FactSet Participates in Barclays Americas Select Franchise Conference

Barclays

Realty Income Corp

Healthpeak Properties

The majority of analysts have a buy rating on these REITs. They offer dividends yielding more than 4.5% that analysts believe will grow over the next few years.

4 Dividend Stocks Yielding 4.5%-Plus That Are Great Buys, According to Wall Street

Apple

Ameriprise Financial

Aptargroup

American Water Works

Costco

Discover

First Financial Bankshares

H.B. Fuller

W.W. Grainger

Johnson & Johnson

Lithia Motors

Lakeland Bancorp

Lindsay

MetLife

Procter & Gamble

PNC Financial Services

Portland General Electric

Southern Company

Sonoco Products

Sysco

Travelers

Procter & Gamble extended its dividend growth streak to 67 years in the first two weeks of April with a 3% increase. Most of the increases I expected in the first half of April will actually occur in the upcoming week.

Apple Among 14 Companies To Announce Dividend Growth In Late April

FactSet's (FDS) Q2 revenues grow year over year but miss estimates by a slight margin.

FactSet (FDS) Stock Gains 2% Following Q2 Earnings Beat

NORWALK, Conn., March 24, 2023 (GLOBE NEWSWIRE) -- FactSet Research Systems Inc. (NYSE: FDS | NASDAQ: FDS), a global financial digital platform and enterprise solutions provider, today announced the appointment of Elisha Wiesel to its Board of Directors.

FactSet Appoints Elisha Wiesel to Board of Directors

FactSet Research Systems Inc. (NYSE:FDS ) Q2 2023 Earnings Conference Call March 23, 2023 11:00 AM ET Company Participants Kendra Brown - Senior Vice President, Head of Investor Relations Philip Snow - Chief Executive Officer Linda Huber - Chief Financial Officer Helen Shan - Chief Revenue Officer Conference Call Participants Brendan Popson - Barclays Alex Kramm - UBS George Tong - Goldman Sachs Andrew Nicholas - William Blair Faiza Alwy - Deutsche Bank Craig Huber - Huber Research Partners Ashish Sabadra - RBC Capital Markets Russell Quelch - Redburn Kevin McVeigh - Credit Suisse AG Shlomo Rosenbaum - Stifel Toni Kaplan - Morgan Stanley Owen Lau - Oppenheimer Operator Good day and thank you for standing by and welcome to the FactSet Q2 Earnings Call. At this time, all participants are in a listen-only mode.

FactSet Research Systems Inc. (FDS) Q2 2023 Earnings Call Transcript

FactSet (FDS) delivered earnings and revenue surprises of 4.11% and 0.13%, respectively, for the quarter ended February 2023. Do the numbers hold clues to what lies ahead for the stock?

FactSet Research (FDS) Q2 Earnings Surpass Estimates

NORWALK, Conn., March 23, 2023 (GLOBE NEWSWIRE) -- FactSet ("FactSet" or the "Company") (NYSE: FDS) (NASDAQ: FDS), a global financial digital platform and enterprise solutions provider, today announced results for its second quarter ended February 28, 2023.

FactSet Reports Results for Second Quarter 2023

NORWALK, Conn., March 21, 2023 (GLOBE NEWSWIRE) -- FactSet  (NYSE: FDS | NASDAQ: FDS), a global provider of integrated financial information, analytical applications, and industry-leading services, announced today that it will host a Fixed Income/Bond Holder call to discuss the Company's recent performance. The call will be hosted by Phil Snow, Chief Executive Officer, and Linda Huber, Chief Financial Officer. Their prepared remarks will be followed by a live Q and A session.

FactSet Schedules Fixed Income/Bond Holder Update Call

FactSet's (FDS) second-quarter fiscal 2023 earnings and revenues are expected to have increased year over year.

FactSet (FDS) to Report Q2 Earnings: What's in the Offing?

Chewy

Commercial Metals

Darden Restaurants

Foot Locker

General Mills

GameStop

HealthEquity

NIKE

Ollie's Bargain Outlet Hlds

The fourth quarter 2022 earnings season is now almost over. However, fewer companies mentioned the term “recession” in the conference call transcripts this time.

10 Biggest Companies Reporting Earnings in the Fourth Week of March 2023

FactSet (FDS) is currently benefiting from a growing customer base and a strong global presence.

Reasons to Retain FactSet (FDS) Stock in Your Portfolio Now

NORWALK, Conn., Feb. 23, 2023 (GLOBE NEWSWIRE) -- FactSet (NYSE: FDS | NASDAQ: FDS), a global provider of integrated financial information, analytical applications, and industry-leading services, announced today that it will release its financial and operating results for the second quarter fiscal 2023, ending February 28, 2023, on Thursday, March 23, 2023. FactSet will also host a conference call to discuss these results at 11:00 a.m. Eastern Time on Thursday, March 23, 2023.

FactSet Schedules Second Quarter 2023 Earnings Call

The FactSet Research Systems stock has been an impressive performance machine over the last 20 years which the share price has risen by more than 2,000 percent. FactSet is growing even in difficult macroeconomic times. The company is very well-positioned and could benefit from AI innovations.

FactSet Research Systems: Never Bought, Always Regretted

Devon Energy

Kinder Morgan

These energy companies should generate enough cash to continue paying high-yielding dividends for the next couple of years.

These 3 Energy Stocks Should Have the Fuel to Continue Paying a Gusher of Dividends

Abbott Labs

Accenture Plc

Adobe

Autodesk

Aflac

Applied Materials

Advanced Micro Devices

Amazon

Activision Blizzard

AutoZone

Broadridge Financial

Carrier Global

Caterpillar

Constellation Energy Corp

Cigna

CME Group

Copart

Cintas

Deere & Company

Dollar General

Domino's Pizza

Elevance Health Inc

Fair Isaac

Three companies have been removed from my watchlist and added to the active portfolio. I added four new companies to my watchlist.

Compounders And Dividends: February 2023 Watch List Update

NORWALK, Conn., Feb. 07, 2023 (GLOBE NEWSWIRE) -- FactSet (NYSE: FDS | NASDAQ: FDS), a global provider of integrated financial information, analytical applications, and industry-leading services, today announced that Linda Huber, Chief Financial Officer of FactSet, will participate in a fireside chat at 4:55 p.m. EST at the Credit Suisse 24 th Annual Financial Services Forum at The Ritz-Carlton Key Biscayne Miami, Florida on Tuesday, February 14, 2023.

FactSet To Participate in the Credit Suisse 24th Annual Financial Services Forum

NORWALK, Conn., Feb. 02, 2023 (GLOBE NEWSWIRE) -- FactSet (NYSE: FDS | NASDAQ: FDS), a global provider of integrated financial information, analytical applications, and industry-leading services, today announced that its Board of Directors approved a regular quarterly cash dividend of $0.89 per share.

FactSet Declares Dividend

FactSet solutions deployed to BMO Wealth Management professionals to drive digital transformation FactSet solutions deployed to BMO Wealth Management professionals to drive digital transformation

BMO Wealth Management Selects FactSet as Primary Market Data Provider

News for FactSet Research Systems Stock (FDS)