Is Dun & Bradstreet a Good Buying Opportunity Or a Thing of the Past?

Dun & Bradstreet's (NYSE: DNB  ) stock has had a rough 2014, with the price falling from a high of $124 to $93. Management's guidance of little-to-no sales growth for 2014 damaged investors' confidence in the company.

Dun & Bradstreet, like other business-intelligence companies such as McGraw Hill Financial (NYSE: MHFI  ) , has historically had a wide moat due to its massive data on businesses and credit. Sales have been made by selling subscriptions to the database, but times are changing.  

The data business
Dun & Bradstreet owns a large database of more than 225 million businesses around the world and it sells this information in various forms.

The most popular service is providing risk intelligence on businesses: before a company enters into a large contract with another corporation, it may want to look at the other corporation's history, current liabilities, and so on. Dun & Bradstreet provides this service for businesses so they don't have to perform their own extensive investigation. This type of information is easy to find for public companies but very hard to find for private ones. 

Management claims that the movement toward big data will play to the strengths of the company, but the sales numbers do not show this strength so far.

According to the 2013 financials, the subscription service sales were flat in 2013 and non-subscription sales increased slightly. Revenue from sales and marketing products slightly increased.

The company now plans to move its data to more mobile and cloud platforms. This seems late to the game, as most companies started this years ago. Management appears to be leery of these new platforms because the company has an invaluable asset and it doesn't want to risk opening anything up to the public. Instead, it is creating new private rating systems in the name of innovation that produce little actual value over the present information available for subscribers..

Fork in the Road
Dun & Bradstreet could go one of two paths. It could remain a stagnant company with a large database of information on private businesses and refuse to innovate. The company could continue to charge high rates to customers, have high margins, and slowly watch sales decline. Businesses will still use its services because they need to.

The other option is to make big changes and use its assets to provide huge value for the business community.

McGraw Hill Financial provides credit scores for public companies and government-issued securities that anybody can access and then charges for additional information and services. Sales grew by 10% in the last year with this strategy, and margins are very high. McGraw is providing real-time data for investors and information is user-friendly.

What if Dun & Bradstreet followed this lead and provided free ratings on private companies and then up-sold customers on the details?  The Dun & Bradstreet ratings could become somewhat close to the universally known and respected McGraw Hill S&P ratings, but for private businesses.

On top of this, McGraw Hill Financial is moving aggressively into emerging markets. It has a large business in India and has licensed its brand to many other international bodies. Imagine if Dun & Bradstreet moved aggressively into emerging markets and could tell users about potential business partners overseas. If a company wanted something manufactured in Vietnam, it could find trusted companies on Dun & Bradstreet rather than risking capital or spending a lot of time investigating. 

In conclusion
Due to its innovation and growth, the McGraw Hill Financial stock trades at 26.5 times trailing 12-month earnings. Dun & Bradstreet trades at 13.8 times earnings.

At this current state, Dun & Bradstreet deserves the valuation. However, if the company finds a way to innovate and unlock the value in its database, the stock price could potentially trade at substantially higher levels. The key for investors is to watch management's strategy. If the data is used in new innovative ways, investors could be generously rewarded.

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