FactSet's Subscription Model Offers Buffers Against Economic Cyclicality, Analyst Boosts Price Target

BMO Capital Markets analyst Jeffrey M. Silber reiterated the Market Perform rating on FactSet Research Systems Inc. FDS, raising the price target to $436 from $419.

The company reported fourth-quarter FY23 sales growth of 7.3% year-on-year to $535.797 million, marginally beating the consensus of $535.280 million. 

Adjusted EPS of $2.930 missed the consensus of $3.50.

Growth decelerated during the quarter and was mainly sell-side driven, according to Silber. 

FY2024 guided ASV growth of 7% at the midpoint implies that top-line trends stabilize this year compared to the deceleration throughout FY2023, the analyst adds.

Margins were better than expected, and the bottom line was weaker than expected from below-the-line items.

Silber thinks FDS should continue to gain a share in the market data industry, as has been the case historically. 

The company has some buffers against economic cyclicality, as virtually all of its business is subscription-based and has been expanding into the relatively more stable wealth industry, the analyst adds. 

Silber projects future margin expansion, given management's increased focus there. 

However, technology investments (+24% increase in the budget), including generative AI and cloud expenses, are expected to offset expansion, mentions the analyst. 

Management expects AI efficiencies to benefit in FY2025, Silber writes.

For FY24, the analyst raised revenue expectations to $2.214 billion from $2.208 billion. 

For FY25, the analyst raised revenue estimates to $2.346 billion from $2.339 billion.

Price Action: FDS shares are trading higher by 2.27% to $436.45 on the last check Friday.