So far this year, shares of Verisk Analytics, Inc. VRSK have gained 28.2% compared with 36.5% rise of the industry it belongs to and 22.1% increase of the Zacks S&P 500 composite.
The company has an expected long-term earnings per share (three to five years) growth rate of 10.5%. Further, earnings are anticipated to register 6.6% growth in 2019 and 10.8% in 2020.
Let’s delve deeper to find out why this stock is worth retaining at the moment.
Factors That Bode Well
Verisk’s expertise in providing predictive data analytics decision by using advanced technologies to collect and interpret different types of data sets is impressive. The company mainly uses advanced technologies such as latest remote sensing and machine learning technologies along with cloud computing to serve customers in areas of rating, underwriting, claims, catastrophe and weather risk, natural resources intelligence and economic forecasting. Its efforts to stay technologically updated to meet varying client demands and its technical prowess in analytics and Big Data provide Verisk an edge over its competitors.
Higher organic revenue growth through a combination of increase in new customers for existing solutions, cross-sale of its existing solutions to existing customers and the sale of new solutions will help Verisk create long-term value. In the first nine months of 2019, total revenues grew 7.1% on an organic constant-currency basis. In 2018, total revenues grew 6.5% organically and 6.1% on an organic constant-currency basis. This marks an improvement from 2017 when total revenues grew 4.5% organically and 5.3% on an organic constant-currency basis. Notably, Verisk has recorded an average organic revenue growth of about 8% in the past 10 years.
Moreover, Verisk continues to earn the major portion of its revenues from subscriptions and long-term agreements. In the first nine months of 2019, Verisk’s three reportable segments, namely, Insurance, Energy and Specialized Markets, and Financial Services generated a respective 82%, 78% and 72% of revenues from subscriptions and long-term agreements for its solutions.
Acquisitions have also been one of the key growth catalysts for Verisk. The company has been continuously acquiring and investing in companies globally to expand its business and geographic footprint. So far in 2019, Verisk has announced three acquisitions. In March, the company inked a deal with an enterprise application software provider to acquire the latter’s Content as a Service business. This would strengthen the company’s environmental health and safety services, and expand its global customer footprint and European operations. In August, Verisk inked a deal to buy out Genscape to expand its Wood Mackenzie business line’s existing intelligence in energy data and analytics, and strengthen its research and consultancy across the natural resources sector. In October, the company signed a deal to acquire property condition and history data provider BuildFax to boost its Insurance segment. Apart from the aforementioned announcements, the company also acquired two companies in 2019 — Keystone Aerial Surveys, Inc. in July to expand its aerial survey services, and Property Pres Wizard, LLC. in August.
In spite of significant growth prospects, Verisk is not free from headwinds. The company has a debt-laden balance sheet. As of Sep 30, 2019, long-term debt was $2.67 billion while cash and cash equivalents were $311.8 million. High debt may limit the company’s future expansion and worsen its risk profile. Also, escalating investments for software development to expand growth in organic businesses and recent acquisitions resulted in higher capital expenditures.
Since Verisk’s business model centers on huge amount of data, it remains susceptible to operational risks related to security breaches at its facilities, computer networks, and databases, resulting in loss of its credibility and/or customers. Dependence on external sources for data supply can lead to contractual and pricing issues with data suppliers (some of them are also its rivals).
Zacks Rank & Stocks to Consider
Currently, Verisk carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector are Global Payments GPN, Mastercard MA and Cardtronics CATM. While Global Payments sports a Zacks Rank #1, Mastercard and Cardtronics carry a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Global Payments, Mastercard and Cardtronics is 17%, 15.9% and 4%, respectively.
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