The increased adoption and success of the work-from-home trend is enabling the Zacks Business – Information Services industry to address the pandemic-induced rising demand for services that ensure risk mitigation, cost reduction and productivity improvement. The heightening technology adoption is benefiting companies like FactSet Research Systems Inc. (FDS Quick QuoteFDS ) , S&P Global Inc. (SPGI Quick QuoteSPGI ) and Verisk Analytics, Inc. (VRSK Quick QuoteVRSK ) , supporting them to offer digitally-transformed, personalized and value-added services.
About the Industry
The Zacks Business – Information Services industry comprises companies that offer a range of services, including software, data, risks, research, information and analytics solutions. These companies operate in a dynamic business environment characterized by evolving customer behavior, preference and demographics. Amid the pandemic, the key focus within the industry is currently on channelizing money and efforts toward more effective operational components, such as technology, digital transformation and data-driven decision-making, in order to identify demand sources and target end markets. Prominent players include ratings, benchmarks, analytics, and data provider, S&P Global and provider of data-analytics solutions, Verisk Analytics.
4 Trends Shaping the Future of the Information Industry
Healthy Demand Environment: The industry is mature and has witnessed a progressively growing business environment in the past few years. Revenues, income and cash flows are likely to see healthy growth during the post-pandemic economic improvement.
Demand for Customer-Centric Solutions: The pandemic has stoked a many-fold increase in demand for specific solutions that ensure risk mitigation, cost reduction and productivity improvement. This, in turn, has opened up more business opportunities for industry players. These companies are now modifying their business strategies to offer more customer-centric solutions.
Digital Transformation is the Key: Companies focused on digital transformation are positioned to recover quickly post the global health crisis. This is because digital transformation substantially enhances operational efficiency, facilitates time to market, and boosts a firm’s ability to quickly and efficiently meet customer expectations.
Increased Adoption of Technologies: Automation in assembling and the use of big data in enhancing business information will fuel the industry’s growth in the days to come. Companies are shifting from conventional data solutions to technical and domain-specific expertise, data analytics solutions, financial consultancy, and operational consultancy services.
Zacks Industry Rank Indicates Bleak Near-Term Prospects
The Business – Information Services industry is housed within the broader Zacks Business Services sector. It carries a Zacks Industry Rank #220, which places it in the bottom 12% of more than 250 Zacks industries.
The group’s Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.
Industry’s Price Performance
Over the past year, the Zacks Business – Information Services industry has outperformed the S&P 500 composite and the Zacks Business Services sector.
While the industry has declined 10.4%, the S&P 500 composite declined 21.2% in the said time frame. The broader sector fell 48.5%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing business information services stocks, the industry is currently trading at 20.38X compared with the S&P 500’s 15.51X and the sector’s 20.78.
Over the past five years, the industry has traded as high as 32.73X, as low as 19.64X and at the median of 25.35X, as the charts below show.
Price to Forward 12 Months P/E Ratio
3 Business Information Service Stocks to Consider
We are presenting three stocks that are well-positioned to grow in the near term.
FactSet Research Systems: FactSet has been engaged for more than 40 years in delivering extensive data, sophisticated analytics and flexible technology to global financial professionals and is currently benefiting from a growing customer base and strong global presence. The company added 219 clients in the fourth quarter of fiscal 2022, taking the total to 7,538. The annual client retention rate was 92%. FactSet’s Annual Subscription Value plus professional services were up 17.6% year over year in the quarter.
FactSet had a cash and cash equivalents balance of $536 million at the end of fourth-quarter fiscal 2022 with no short-term debt to clear off. A strong cash position allows FactSet to pursue strategic acquisitions, invest in growth initiatives and return cash through regular quarterly dividend payments and share repurchases.
The March 2022 acquisition of CUSIP Global Services from S&P Global is expected to significantly boost FactSet’s open data strategy and expand its position in the global capital markets. FDS paid dividends of $125.9 million, $117.9 million and $110.4 million in fiscal 2022, 2021 and 2020, respectively.
The company currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the fiscal 2023 EPS has been revised 0.5% upward in the past 60 days to $13.42.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: FDS
S&P Global: The company provides ratings, benchmarks, analytics, and data to the capital and commodity markets. Amid the pandemic, successful operations from remote locations, along with productivity programs, have been benefiting its top line.
The recent buyout of IHS Markit is expected to enhance S&P Global’s data and analytics offerings. Another acquisition of The Climate Service is expected to enhance the company’s portfolio of essential environmental, social, and governance insights and solutions capabilities.
The company’s revenues are anticipated to grow 41.6% and 10.9%, respectively, in 2022 and 2023. S&P Global carries a Zacks Rank #3.
Price and Consensus: SPGI
Verisk Analytics: Global data analytics solutions provider, Verisk has a robust growth strategy that focuses on organic growth, product development and acquisitions. This strategy has enabled the company’s revenues to witness a compound annual growth rate of 10.3% over the past five years.
The company continues to invest in people, data sets, analytic solutions, technology and complementary businesses to keep itself updated with changing requirements in the markets it serves. It is maintaining its focus on increasing solution penetration with customers, developing a new proprietary database and predictive analytics and expanding into new customer sectors.
The company’s earnings are anticipated to grow 8.7% and 7.9%, respectively, in 2022 and 2023. Verisk carries a Zacks Rank #3.
Price and Consensus: VRSK