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FactSet's Strong Numbers

Yesterday's fourth-quarter and full-year earnings release confirms just why financial data provider FactSet (NYSE: FDS  ) is a cash king and overall dynamite business. Too bad then, that this is no secret in the stock market. However, we all know that Mr. Market is a moody fellow, so it's best to stay up on the name in hopes a buying opportunity shows itself at some point. 

FactSet continued its double-digit ways by reporting full-year sales growth of 22.8% and diluted earnings that expanded more than 30%. Operating cash flow improved an equally impressive 29%, and even though capital expenditures nearly doubled, free cash flow again exceeded reported net income, speaking to the firm's capital-generation capabilities.

And despite a steady stream of acquisitive growth in recent years, FactSet looks to have grown entirely from organic means this year. Growing internally is of course less risky than buying competitors, but FactSet will likely be back on the M&A wagon soon as it competes with the likes of Bloomberg, Thomson (NYSE: TOC  ) , Reuters (Nasdaq: RTRSY  ) , and McGraw Hill's (NYSE: MHP  ) Standard & Poor's division for dominance in the financial information and analytical services industry.

Fortunately, there are plenty of customers for this type of data, spanning from private equity firms such as Blackstone (NYSE: BX  ) to bulge-bracket brokers like Goldman Sachs and banking behemoths like US Bancorp (NYSE: USB  ) and JPMorgan Chase (NYSE: JPM  ) . Demand is obviously influenced by financial market conditions, which are currently reeling from subprime woes and liquidity fears, but this doesn't appear to have hurt FactSet, considering that client retention remained above 95% for the fourth quarter.

FactSet's stellar track record and clear financial direction have not gone unnoticed by investors, and the stock is trading at more than 27 times forward earnings expectations. The multiple for the just-completed year is an even heftier 33 times, and while the free cash flow multiple is slightly lower, it will take a serious stock slide and subsequent valuation compression for me to get more interested in the name. But in the meantime, FactSet will remain on my all-star company watch list.      

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