Thomson Reuters Earnings: Few Surprises as Recurring Revenue Model Holds Up

Thomson Reuters TRI was mostly steady in the first quarter. Revenue grew 5% organically to $1.74 billion, in line with the FactSet consensus estimate. Expenses were slightly better than expected and as a result adjusted EBITDA of $677 million and adjusted EPS of 0.80 came in a bit ahead of the consensus estimates of $663 million and $0.80, respectively. Excluding the impact of selling a majority stake in its Elite product within its legal professionals segment, the firm held its guidance. In early April, Thomson Reuters announced that it would sell approximately 80% of its Elite business within its legal segment for approximately $400 million. We believe the deal makes sense as we view Elite as not core to the firm’s strategy and as a laggard. Overall, there was little that would alter our long-term view of the firm, and we will maintain our narrow moat rating and fair value estimate of $109 per share. We regard shares as modestly overvalued.

Diving deeper into the firm’s revenue, tax, and accounting saw 11% organic revenue with strength in Latin America. Corporates revenue grew 8% organically, a slight downtick from 9% in the prior quarter with growth broad-based. Legal professional continues to be the slowest of the Big Three with 5% organic revenue growth. Thomson Reuters is seeing a lengthening of its sales cycle, which is not surprising to us given the macroeconomic uncertainty.

In light of the market buzz regarding artificial intelligence, Thomson Reuters showcased its AI capabilities. Thomson Reuters uses AI in some of its products such as search capabilities for its legal products. We expect AI to continue to be a focus for the company both for organic and inorganic investments.