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FactSet Research Systems Inc Slight Reacceleration Imbedded in Estimates Is Key Question in Upcoming Results

FactSet will report fiscal first‐quarter results before the market opens on December 18; we expect FactSet to report relatively solid results that continue to reflect a tough endmarket environment. Employment trends in the financial services industry appear to remain mixed: There have been a few modest signs of improvement in financial services employment, but there also were some signs of further weakness. We thus think that the end‐market conditions remain similar to the prior few quarters. The competitive environment for FactSet’s solutions also remains intense, but the year‐ago comparisons start to get a little easier during the next few quarters. Overall, we do not think there has been a meaningful change in the demand environment for FactSet’s services—consistent with that, S&P Capital IQ’s revenue growth rate remained steady at 9% last quarter (5% organically). FactSet has been able to offset the tough end‐market conditions during the last year by gaining market share, so they continue to grow, albeit at a slower pace than in the past: We suspect that remains the case.

Management provided fiscal first‐quarter revenue guidance of $210 million‐$213 million and EPS guidance of $1.10‐$1.12. FactSet has a long history of meeting or exceeding its guidance, reflecting the high visibility into quarterly revenue at the company. Our estimate and the consensus estimate are in line with management’s guidance, and we do not expect any significant surprises in the quarterly income statement for the company. We believe that investors will pay much closer attention to client growth, subscription value growth, management’s guidance for next quarter, and commentary about the company’s annual price increase. At a high level, the main issue is whether or not the company’s growth rate has bottomed out in the fiscal first quarter.

The chart below shows our organic revenue growth projections. Management’s fiscal first‐quarter guidance allows for a slight deceleration in organic growth in the quarter, which is consistent with the 7% organic growth in subscription value last quarter. Most analysts project a gradual rebound in the company’s organic growth after this quarter. The consensus is slightly more aggressive than our estimates, calling for a 9% growth rate by the fiscal fourth quarter. Most of the Street also modeled 9% revenue growth for fiscal 2014. Therefore, the key coming out of this earnings report is whether or not investors
are comfortable that FactSet’s growth will gradually start to get better from this point.

Our view is that the year‐ago comparisons do get easier, but the end‐market environment still remains tough, so we expect only a modest improvement in the company’s growth rate during the next few quarters, which is a little more conservative than the consensus estimates.

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