Verisk Analytics reported much better‐than‐expected third‐quarter results Thursday evening. Adjusted EPS of $0.54 exceeded the consensus estimate by $0.04. Importantly, after a slowdown in the company’s organic growth rate to 6.4% last quarter, the company’s growth rate bounced back up to 8.5% this quarter, which was much better than our projection for 6.7% organic growth. The company’s profit margins also were much better than expected, as the company realized strong operating leverage from its incremental revenue growth.
The main reason for the upside in the quarter was a further acceleration in the growth rate of the company’s increasingly important healthcare vertical. Management had been cautioning that its growth rate in the healthcare vertical will slow down because of tougher comparisons, but the organic growth rate instead accelerated to 48% during the third quarter. We note that this organic growth rate does not yet include MediConnect, which itself appears to be growing at a very fast pace.
We believe that the strong growth rate of this segment reflects 1) the inclusion of Bloodhood and Health Risk Partners into the organic growth rate for this segment (the company lapped the one‐year anniversary of those acquisitions last quarter); 2) the strong demand for analytics in the healthcare sector; 3) management’s efforts during the last year to bring together its recent acquisitions in the healthcare vertical onto a unified platform, which we believe is helping Verisk gain market share; and 4) seasonal strength in the second half of the year that investors may have underappreciated (although it was shown in the historical financials in 8‐Ks by the company). As shown in the table below, the combination of the strong growth in the healthcare vertical with steady organic growth in the insurance vertical and stable organic revenue in the other businesses yielded much better‐than‐expected
growth for the quarter.
We note that the insurance business faced a very tough year‐ago comparison because of strong storm‐related work last year, but the insurance vertical’s growth rate on a two‐year stacked comp basis appeared to have picked up modestly from last quarter. We also note that given the damaging impact of storms on the eastern coast of the United States during the last few days, we doubt we have to worry much about lower storm‐related revenue for this vertical during the next few quarters.