Agentic AI Will Transform Legal And Accounting Workflows

Key Takeaways

• Accelerated AI-driven automation and proprietary content are strengthening Thomson Reuters' market leadership, customer retention, and recurring revenue growth.
  
• Ongoing innovation, talent-driven demand for workflow tools, and strategic acquisitions are set to lift margins, expand offerings, and boost long-term earnings.
  
• Intensifying competition, integration risks, slow AI adoption, and rising compliance costs threaten Thomson Reuters' core business model, margin expansion, and long-term revenue growth.

Catalysts

Operates as a content and technology company in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.

• Thomson Reuters' ongoing rollout of agentic AI solutions across Legal and Tax & Accounting-such as Westlaw Advantage, CoCounsel Legal, and Ready to Advise/Ready to Review-is enabling automation of increasingly complex professional workflows. As customer adoption accelerates, these differentiated, premium offerings are expected to drive both higher subscription revenue and enable further price increases.
  
• The company's proprietary, authoritative content and integrated product suite positions it as a trusted platform, benefiting from the global proliferation of data and increasingly complex regulatory environments. This "category leader" status, combined with tight workflow integration, supports higher client retention and market share gains, boosting long-term recurring revenues.
  
• Investments in innovation and digital transformation-including significant GenAI spend-are producing operating leverage and capital efficiency. These investments, alongside continued focus on cloud migration and workflow automation, are expected to incrementally lift operating margins and support long-term earnings growth.
  
• The acute talent shortage in tax, accounting, and audit professions is increasing reliance on workflow automation and AI-powered tools. Thomson Reuters' advanced solutions are positioned to address this structural demand, expanding the addressable market and driving accelerated growth in its Tax & Accounting segment.
  
• Strong liquidity and capital flexibility (with ~$10B capital capacity by 2027 and low leverage) enable strategic M&A in legal tech, risk, and workflow automation. Well-executed acquisitions are expected to support cross-selling, expand product offerings, and drive future EPS growth and enhanced shareholder returns.

Thomson Reuters Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Thomson Reuters's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.9% today to 22.9% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $4.68) by about September 2028, up from $1.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 51.2x on those 2028 earnings, up from 49.9x today. This future PE is greater than the current PE for the US Professional Services industry at 33.5x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.18%, as per the Simply Wall St company report.

Thomson Reuters Future Earnings Per Share Growth

Risks

• The legal technology sector is increasingly competitive, with new AI start-ups and established competitors launching innovative products and forming strategic partnerships, which could erode Thomson Reuters' pricing power and growth in its legacy legal research business, impacting long-term revenue and net margin.
  
• There is notable integration risk related to Thomson Reuters' ongoing bolt-on acquisitions (e.g., SafeSend, Pagero, Materia); difficulties in successful integration or realization of anticipated synergies could elevate operating expenses and drag down overall earnings growth and net margins.
  
• Accelerating advancements in open-source AI, collaborative data platforms, and law firm in-house AI initiatives may undermine the proprietary value of Thomson Reuters' core content, threatening long-term subscription revenue growth and potentially leading to pricing pressure.
  
• While investments in generative AI and agentic AI are significant ($200 million+ annually), adoption across customer cohorts is still in early innings, with the majority of law firms and tax/accounting clients pacing their uptake-prolonged slow adoption or disappointment in realized cost savings may result in lower recurring revenue growth and further strain earnings forecasts.
  
• Increasing complexity in data privacy regulations and the necessity for robust cybersecurity (highlighted by requirements like U.S. FedRAMP for government contracts) could drive up compliance costs and operational risks; any deficiencies or breaches could limit international expansion and weigh on operating margins over the long term.

Valuation

• The analysts have a consensus price target of CA$274.103 for Thomson Reuters 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 CA$308.28, and the most bearish reporting a price target of just CA$232.96.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.2 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 51.2x, assuming you use a discount rate of 6.2%.
• Given the current share price of CA$244.76, the analyst price target of CA$274.1 is 10.7% higher.
• 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.