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FactSet Tops Earnings Forecasts As It Turns to M&A for Growth

By Dan Caplinger - Sep 22, 2015 at 8:22PM

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The financial services company announced a new acquisition as it delivered record results.

Financial companies have regained much of their losses since the financial crisis, and that has freed up many of them to start investing in the materials they need in order to distinguish themselves in a cutthroat industry. FactSet Research Systems (FDS -0.38%) aims to give financial services firms the information and analysis they need in order to deliver strong results to their investors, and FactSet itself has posted solid growth in catering to the needs of its clients. Coming into this morning's fiscal fourth-quarter financial report, FactSet investors were hopeful that the company would be able to keep expanding even as the financial markets have started to get choppier. If anything, FactSet looks healthier than ever, and a key new acquisition points toward a future strategy for the company going forward. Let's take a closer look at FactSet Research Systems and what it sees ahead.

FactSet delivers good news
FactSet's fiscal fourth-quarter results continued the positive momentum from last quarter's report. Sales climbed nearly 10% to $261.8 million, which very nearly matched what most investors had expected to see from the company. Adjusted net income of $62 million worked out to $1.48 per share, which was a penny better than the consensus forecast and up 13% from the year-ago figures.

Looking more closely at FactSet's numbers, the company continued to succeed in building up subscription value for its suite of financial information services. Annual subscription values climbed almost 9% to $1.01 billion even after taking out the positive impact from recent acquisitions. Growth rates in the U.S. were slightly slower than overseas growth once you account for factors like acquisitions in the domestic arena and currency movements that put downward pressure on non-U.S. revenue. Margins climbed slightly to 33.9%, while quarterly cash flow rose by more than 12% from year-ago levels.

Retention has always been a key element of FactSet's success, and the company kept up its positive track record on that front, with annual retention rates rising by a percentage point to 94% compared to last year's fiscal fourth quarter. The company set a new record for the number of people using its workstation equipment, with more than 3,200 professionals now on the system. Client counts rose 2% during the quarter to fall just shy of the 3,000 mark.

New CEO Phil Snow was pleased with FactSet's results. "Fiscal 2015 was our 35th consecutive year of revenue growth and our 19th consecutive year of positive earnings growth as a public company," Snow said. Snow was also impressed by record increases in user counts and believes that with the help of M&A activity, FactSet can keep extending its reach across the industry.

The future of FactSet
In particular, FactSet announced with its earnings report that it would acquire execution management system maker Portware for $265 million. Expected to close by the end of the current quarter, the deal will give FactSet access to Portware's set of global clients, with whom Portware has a close relationship and has already tapped directly into their trading ecosystems. By using that knowledge and innovation, FactSet believes it can use Portware's tools to make its own products better.

FactSet also thinks that the current quarter should be favorable due to other factors. The company gave guidance for revenue to come in between $265 million and $269 million, which is a slightly more optimistic range than the current consensus forecast. Earnings of $1.46 to $1.48 per share would be slightly less than the current forecast, but the company sees the possibility that reenacting the federal research and development tax credit could send earnings above what investors currently expect and could add a one-time benefit as well.

Stock buybacks have also become a regular staple for investors to watch. FactSet spent $78.5 million to buyback more than 479,000 shares during the previous quarter, and it still has another $134 million authorized to spend in the future. Combined with solid dividend income, FactSet remains committed to returning capital to shareholders on a regular basis.

FactSet stock fell following the announcement, losing 2% on the day, but the decline was in line with the market's overall performance on a tough day generally. In the long run, the company is optimistic that it can continue to ride its momentum higher, and investors seem to have the same positive beliefs in FactSet's ability to grow well into the future.

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