December 13, 2011

The Wall Street Journal

For FactSet, the Numbers Are Aligned

Just the FactSet, ma'am.

This mightn't seem a great time to be in financial services. And yet FactSet Research Systems Inc. is thriving.  The company is due out with fiscal first-quarter results on Tuesday that are expected to show earnings of 98 cents a share, according to analysts surveyed by, well, FactSet.  That would be a jump of about 11% from a year earlier. Revenue is seen up about 14% to $197 million.

FactSet is still tiny next to rivals like Thomson Reuters, McGraw-Hill, which owns Standard & Poor's, and privately held Bloomberg LP.  Its share of the global market-data industry this year is expected to be just over 3%, according to Burton-Taylor International Consulting LLC.  But it is partly the room for expansion that has investors excited.

FactSet has shown impressive growth despite a tough environment.  In fact, it may be helped as much by the financial industry's turmoil as held back by it.  Client growth in the quarter ended in August was the strongest since the heady days of 2006.

There are three main reasons for this.  First, improvements to FactSet's software and data offerings, which now include company analytics and real-time market quotes.  Second, industry pressures prompting clients to lower expenses and, in some cases, consolidate data subscriptions.  FactSet hasn't only broadened its offerings but analysts estimate it is much less expensive than Bloomberg and roughly on par with Thomson Reuters.  Third, the merger between rivals Thomson Financial and Reuters actually may have given FactSet an opening.

Piper Jaffray analyst Peter Appert calls that merger one of the industry's "most significant mistakes" in recent years.  Rather than delivering the hoped-for synergies, he says, it distracted management and created an opportunity for FactSet to gain share.  Outgoing Chief Executive Tom Glocer recently admitted regrets over the troubled launch of the company's revamped market-data product, Eikon.

FactSet shares aren't cheap; they trade at roughly 20 times estimated calendar 2012 earnings at a time when the S&P 500-stock index has a multiple below 12 times.  This, plus finance-industry headwinds, explain why analysts have soured a bit on the shares of late.  But the global appetite for data is only increasing. Indeed, FactSet's international revenue share has doubled over the past decade to about 31% of its total.

While near-term conditions could get choppy, FactSet should continue to spit out the right numbers.
by Kelly Evans