Acquisitions Like Irwin And LiquidityBook Will Expand GenAI Services

Key Takeaways

• Integration of acquisitions and new GenAI products is expanding service offerings and supporting revenue and ASV growth.
  
• Enhanced data solutions and operational productivity improvements are poised to sustain margins and bolster future revenue.
  
• Rising technology costs and asset management challenges may pressure FactSet's margins and hinder growth, with uncertain market conditions affecting revenue consistency.

Catalysts

Operates as a financial digital platform and enterprise solutions provider for the investment community worldwide.

• FactSet is integrating new acquisitions like Irwin and LiquidityBook, adding immediate cross-sell opportunities and expanding services across buy-side and banking workflows, which will support revenue growth.
  
• The launch of new GenAI products, including Pitch Creator and conversational API, is expected to provide additional services that drive adoption and increase ASV growth, positively impacting future revenue.
  
• The company is implementing strategic initiatives in its wealth management segment, securing partnerships like the UBS deal, and this broad market share in the wealth sector should contribute to sustained ASV growth.
  
• FactSet is increasing its focus on data feeds, benefiting from strong demand for high-quality data solutions, which should bolster future revenue and margin expansion through increased enterprise-level sales.
  
• Focus on operational productivity, such as reducing third-party content costs and enhancing workforce efficiency through automation, underpins the company's confidence in maintaining its operating margins despite recent acquisitions.

FactSet Research Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FactSet Research Systems's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.1% today to 26.7% in 3 years time.
• Analysts expect earnings to reach $711.8 million (and earnings per share of $19.44) by about April 2028, up from $542.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.5x on those 2028 earnings, down from 32.0x today. This future PE is greater than the current PE for the US Capital Markets industry at 25.7x.
• Analysts expect the number of shares outstanding to decline by 0.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.27%, as per the Simply Wall St company report.

FactSet Research Systems Future Earnings Per Share Growth

Risks

• The slowing price increases tied to lower CPI levels could negatively impact FactSet's revenue growth, as demonstrated by a nearly $7 million headwind to ASV growth this quarter.
  
• Persistent challenges in the asset management and banking sectors, including ongoing cost rationalization and budget tightening, pose risks to revenue and retention which could unfavorably affect net margins.
  
• The market environment remains uncertain, particularly for banking, which has been a drag on growth; this uncertainty may continue to suppress revenue growth despite potential wins with new products.
  
• Increased technology expenses, noted as 31% higher mainly due to greater cloud and software costs, could pressure operating margins and require significant cost efficiencies elsewhere to offset.
  
• The execution risks tied to international expansion, given mixed results in regions like EMEA, could lead to inconsistent revenue performance and impact overall growth expectations.

Valuation

• The analysts have a consensus price target of $444.805 for FactSet Research Systems based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $503.0, and the most bearish reporting a price target of just $390.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $711.8 million, and it would be trading on a PE ratio of 28.5x, assuming you use a discount rate of 7.3%.
• Given the current share price of $457.01, the analyst price target of $444.81 is 2.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.