Industry Headwinds Might Keep FactSet From Reaching Growth Targets

Barclays provided its expectations for Thursday's IR day, which will indicate whether
FactSet Research Systems Inc.FDS
can outpace industry headwinds.

IR Day Expectations, Context

According to the analysts, while FactSet has successfully arranged its paths for outpacing industry headwinds, the decelerating ASV growth in the fiscal third quarter and the economic uncertainties concerning HF closings, bank layoffs and Brexit all pose threats to the growth potential of the company.

"Results were mostly solid, especially from Buy-side (+9.6 percent ASV) which was led by growth areas like analytics (especially multi-asset), CTS, and Portware; while Sell-side was unsurprisingly impacted by workstation/headcount softness (+8.1 percent ASV vs. +9.5 percent in F2Q)," wrote Barclays.

Related Link: FactSet Sells Market Metrics Business For $165 Million To Asset International

The analysts stated they believe the company will maintain HSD growth even in this unfavorable environment, despite the fact that the headwinds will probably prevent FactSet from reaching its 10 percent growth targets near term. While this is not sufficient for them to make a re-rating back to the mid-20s P/E, the analysts "expect support in the low-20s given its high quality subscription model (our $160 PT is 21.7x CY17)."

Sitting On The Sidelines

The analysts mentioned they prefer to wait until IR day to gain more understanding, providing the potential topics that are expected to be covered that day, including:

    1. Mix details and growth rates for areas like fixed income and wealth
    2. Revenue breakdown between desktop and non-desktop (feeds, content, etc.)
    3. More color on strategy to further diversify into multi-asset and more enterprise level solutions — internal build story or more M&A to come

At time of writing, FactSet was trading up 1.82 percent on the day at $155.69.

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