FactSet Earnings: Performance Robust, but Modest Softness Weighs on the Stock’s Earnings Multiple

Narrow-moat FactSet FDS is performing steadily from an operating perspective. Fiscal third-quarter revenue of $530 million and adjusted EPS of $3.79 edged out the FactSet consensus estimates of $528 million and $3.61, respectively. With FactSet trading at approximately 26 times adjusted 2024 earnings prior to its earnings release, the market is not forgiving for modestly lower revenue guidance. We will maintain our fair value estimate of $365 per share and regard shares as modestly overvalued.

FactSet’s organic annual subscription value, or ASV, grew 8.0% organically, a good result but a slowdown from 9.1% in the prior quarter. Growth was broad-based geographically. The Americas, Europe, Middle East, and Africa, and Asia-Pacific grew at 8%, 7%, and 11% respectively. The growth slowdown was seen in both buy-side and sell-side clients as hiring slows down and clients become cautious about budgets. Buy-side ASV grew 7.3% organically, down from 8.1% in the prior quarter while sell-side ASV grew 12.3%, down from 15.8% in the prior quarter. FactSet continues to raise prices a bit more than in previous years. We estimate pricing increases of about 2.5% of its international subscriptions in the quarter, up from about 1.9% in the year-ago period.

FactSet now expects to come in the lower end of its organic ASV growth outlook of $145 million-$175 million and GAAP revenue outlook of $2.08 billion-$2.10 billion for fiscal 2023. On the positive side, FactSet increased its operating margin and adjusted EPS guidance ranges as it cuts expenses primarily by managing headcount and lowering its real estate footprint. Longer term, artificial intelligence may reduce content collection costs.