FactSet Research: Slowing Growth Generates A Lot Of Bearish Sentiment

Summary

• FactSet Research just reported earnings earlier this week and the company missed slightly on both the top and bottom lines.
• The stock has been caught in a range since the beginning of the year, but seems to have two support levels just under the current price.
• Sentiment toward the stock is far more bearish than it should be given the overall picture of fundamental, sentiment, and technical analysis.

Financial data provider FactSet Research (NYSE:FDS) reported earnings earlier this week and the company missed on its earnings estimate as well as its revenue estimate. The company reported EPS of $2.72 on revenue of $391.8 million. The estimates were for EPS of $2.74 and revenue of $392.2 million. The misses were very slight, but they were misses never the less.

The bigger concern for FactSet is the slowing growth from earnings. Over the last three years, the company has seen EPS grow at a rate of 13% per year. Earnings only grew by 6.7% in the company’s fiscal second quarter and they are only expected to grow by 2.4% for 2021 as a whole.

Revenue has been more consistent, growing by an average of 5% per year over the last three years and growing by 6% in Q2. It is expected to grow by 5.8% for 2021.

While growth is better than contraction, the slowing pace of growth, especially from the earnings side, is concerning. However, I don’t know that the slowing growth rates are a big enough concern to warrant the bearish sentiment toward the stock. We will look at the sentiment indicators in a moment.

Beyond the earnings and revenue, FactSet has great profitability measurements. The return on equity is 45.74% and that is considerably higher than the sector average of 8.7%. The net income margin is 25.24% and that is well above the average stock overall and slightly higher than the sector average.

If we look at the valuation metrics for FactSet, they are pretty average compared to the overall market, but when compared to stocks in the financial services industry they are pretty high. The trailing P/E is at 30.74 and the forward P/E is at 29.95. The price/sales ratio is at 7.62 and the price/book is at 12.16.

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I don't own RactSet Research in my personal holdings, but it is a recommendation in the Hedged Alpha Strategy portfolio.