FactSet Research System (FDS, Financial) is a company in the publishing industry, and appears on GuruFocus’ Buffett-Munger screener. This screener can be used to find companies with high quality businesses at undervalued, or fairly-valued, prices. Businesses on this screener are able to consistently grow revenue and earnings, maintain and expand profit margins while growing, and incur little debt during growth.
As of April 21, 2012, the company traded for $103.67, had a market cap of $4.45 billion, and had the following price multiples: P/E=25.5; P/B=8.2, and P/S=6.1.
Let's take a quick, broad look at the company to see why you might be interested in it.
What Do They Do?
FDS provides integrated financial information and analytical applications to the global investment community. They combine databases from multiple suppliers into a single online source of information and analytics, including fundamental data on tens of thousands of American and international companies and securities. FDS supports the investment process from initial research to published results for buy and sell-side professionals, which include portfolio managers, market research and performance analysts, risk managers, sell-side equity researchers, investment bankers and fixed income professionals. Their applications provide users access to real-time news and quotes, company portfolio analysis, multi-company comparisons, industry analysis, company screening, portfolio optimization and simulation, predictive risk measurements, alpha-testing and tools to value and analyze fixed income securities and portfolios.
How Do They Make Money?
FDS derives its revenue by selling its services and products. Approximately 80% of revenue is from buy-side users, while the remainder comes from sell-side clients. They receive recurring revenue from 95% of their clients, which indicates there's some "stickiness" in their business model with some inherent switching costs locking customers in. In fact, due to the embedded nature of their products in their clients' daily processes, FDS's offerings have become an indispensable source of information.
Competition
FDS operates in a highly competitive industry, some with more resources. Their competitors include:
Sales, EBITDA and Earnings
FDS has steadily increased revenue and earnings. In the last decade they've grown revenue at 17.4%; EBITDA at 18.4%; FCF at 21.6%, and Book Value at 16.4%.
Gross, Operating, and Net Margins
FDS enjoys consistently sizable margins. Their gross margins are in excess of 60%, operating margins are over 30%, and net margins exceed 20%.
Management Effectiveness
As Buffett has taught us, a CEO's main job is efficient capital allocation for shareholders, and it looks like FDS meets that test. As we can see from the chart below, FDS handily exceeds an ROC of 15%, which has been steadily increasing.
Share Buybacks
FDS has been returning capital to shareholders through their share buyback program. Since 2002, they've reduced the share count about 10%.
Valuation
FDS appears to be fairly-valued, trading in the middle of its historical valuation bands.
Bullish Points
Bearish Points
Summary
FactSet Research (FDS) has developed a leadership niche in the highly competitive financial information market. They have a sticky business model with switching costs, leading to a 95% annual subscriber renewal rate, steadily increasing revenue, wide margins, and high ROC. FDS appears to be a quality company worth consideration and buying at the right price.
The Buffett-Munger screener is designed to find Buffett-type investments with extraordinary profitability, consistency, and future prospects. Our monthly Buffett-Munger Best Bargains Newsletter picks one stock from the screener. Our in-depth analysis shares with you why a younger Buffett and Munger would like this stock. If you are a premium member, you can download it here. If you are not, we invite you for a 7-day Free Trial.
Disclosure: No position
DISCLAIMER: This review/analysis is provided for informational and entertainment purposes only and is the opinion of the author. The information and content contained herein should not be construed as a recommendation to invest or trade in any type of security. Neither the information, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any security or investment of any kind. Conduct your own research and due diligence.
As of April 21, 2012, the company traded for $103.67, had a market cap of $4.45 billion, and had the following price multiples: P/E=25.5; P/B=8.2, and P/S=6.1.
Let's take a quick, broad look at the company to see why you might be interested in it.
What Do They Do?
FDS provides integrated financial information and analytical applications to the global investment community. They combine databases from multiple suppliers into a single online source of information and analytics, including fundamental data on tens of thousands of American and international companies and securities. FDS supports the investment process from initial research to published results for buy and sell-side professionals, which include portfolio managers, market research and performance analysts, risk managers, sell-side equity researchers, investment bankers and fixed income professionals. Their applications provide users access to real-time news and quotes, company portfolio analysis, multi-company comparisons, industry analysis, company screening, portfolio optimization and simulation, predictive risk measurements, alpha-testing and tools to value and analyze fixed income securities and portfolios.
How Do They Make Money?
FDS derives its revenue by selling its services and products. Approximately 80% of revenue is from buy-side users, while the remainder comes from sell-side clients. They receive recurring revenue from 95% of their clients, which indicates there's some "stickiness" in their business model with some inherent switching costs locking customers in. In fact, due to the embedded nature of their products in their clients' daily processes, FDS's offerings have become an indispensable source of information.
Competition
FDS operates in a highly competitive industry, some with more resources. Their competitors include:
- Thomson Reuters Corp. (TRI)
- Bloomberg
- Interactive (IDC)
- MSCI Inc. (MXB)
- Morningstar Inc. (MORN)
- Track Data Corp. (TRAC)
- Edgar Online (EDGR)
- McGraw-Hill (MHP )
Sales, EBITDA and Earnings
FDS has steadily increased revenue and earnings. In the last decade they've grown revenue at 17.4%; EBITDA at 18.4%; FCF at 21.6%, and Book Value at 16.4%.
Gross, Operating, and Net Margins
FDS enjoys consistently sizable margins. Their gross margins are in excess of 60%, operating margins are over 30%, and net margins exceed 20%.
Management Effectiveness
As Buffett has taught us, a CEO's main job is efficient capital allocation for shareholders, and it looks like FDS meets that test. As we can see from the chart below, FDS handily exceeds an ROC of 15%, which has been steadily increasing.
Share Buybacks
FDS has been returning capital to shareholders through their share buyback program. Since 2002, they've reduced the share count about 10%.
Valuation
FDS appears to be fairly-valued, trading in the middle of its historical valuation bands.
Bullish Points
- Guru ownership and avg buy price/share: FDS is owned by Ron Baron ($58.38), Chuck Akre ($68.68), and Jean-Marie Eveillard ($63.67). Ron Baron is the largest shareholder.
- FDS enjoys recurring revenue from 95% of its client base, and focus on enhancing client relationships to solidify these recurring revenues
- The company has an unleveraged balace sheet giving them financial flexibility.
- Diversified revenue stream--nearly one-third of their 2010 revenue came from international operations
Bearish Points
- The financial publishing industry is highly competitive, and FDS faces significant competition from larger companies, such as Thomson Reuters and Bloomberg, that have greater resources
- Some of their customers still suffer lingering effects of the financial crisis, which may limit growth prospects
- FDS has a short ratio of 9.2%
Summary
FactSet Research (FDS) has developed a leadership niche in the highly competitive financial information market. They have a sticky business model with switching costs, leading to a 95% annual subscriber renewal rate, steadily increasing revenue, wide margins, and high ROC. FDS appears to be a quality company worth consideration and buying at the right price.
The Buffett-Munger screener is designed to find Buffett-type investments with extraordinary profitability, consistency, and future prospects. Our monthly Buffett-Munger Best Bargains Newsletter picks one stock from the screener. Our in-depth analysis shares with you why a younger Buffett and Munger would like this stock. If you are a premium member, you can download it here. If you are not, we invite you for a 7-day Free Trial.
Disclosure: No position
DISCLAIMER: This review/analysis is provided for informational and entertainment purposes only and is the opinion of the author. The information and content contained herein should not be construed as a recommendation to invest or trade in any type of security. Neither the information, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any security or investment of any kind. Conduct your own research and due diligence.
