IHS Inc. had missed earnings estimates in the fiscal quarter ending in August (the third of its fiscal year, which ends in November), which accounts for at least part of the stock’s decline. Revenue for the quarter had been up 14% compared to the same period in 2011, which brought top-line growth for the first three quarters of the fiscal year to 17%. However, costs have kept pace with sales and so net income was roughly even over the first nine months of both years. To some degree this was due to restructuring charges that IHS has been making in 2012, and with those charges falling off in Q3 earnings managed to rise 8% versus a year earlier. IHS has also recently announced a repurchasing program; like Armstrong’s purchase, this buyback expresses confidence that the market has overreacted to the company’s recent results.
At a trailing P/E multiple of 45, however, IHS Inc. is dependent on considerably faster growth than it has been seeing recently (even if you strip out restructuring expenses entirely from the last quarter and ignore any effects on taxes, net income was up only 10%). It should also be noted that this represents a decrease in margins despite a double-digit growth rate in revenue; how scalable is the company’s business?
According to our database of 13F filings, the largest hedge fund position in IHS at the end of June belonged to Select Equity Group. Select, managed by Robert Caruso, had cut its stake slightly over the course of the second quarter to 1.4 million shares (find more stocks that Select Equity Group owns). David Stemerman’s Conatus Capital Management initiated a position of about 450,000 shares between April and June (see more stock picks from Conatus Capital Management).
Other information companies include Thomson Reuters Corporation (NYSE:TRI), FactSet Research Systems Inc. (NYSE:FDS), Dun & Bradstreet Corp (NYSE:DNB), all of which generally provide business data or general information, and geographic imagery company DigitalGlobe Inc (NYSE:DGI). DigitalGlobe is unprofitable on a trailing basis thanks to a poor quarter in Q4 2011, though its revenue has been growing at a good rate (up 23% in its most recent quarter versus a year ago). Analyst consensus is for EPS of about $1.15 next year, implying a forward P/E of 18. We would want to see more earnings from the company before buying, but it is worth following.
Thomson Reuters is also unprofitable on a trailing basis, but the large company ($23 billion market cap, with IHS have the next-highest value at $6 billion) is expected to break into the black next year and so it trades at 13 times forward earnings estimates. As with DigitalGlobe, we are on the watch for progress towards this target. Thomson Reuters’s 4.5% dividend yield also deserves mention. Dun & Bradstreet has a trailing P/E of 15, but both its revenue and earnings were down in the second quarter compared to the second quarter of 2011. It is a potential value stock, but we would need to see not progress but stabilization here. FactSet has been growing- its net income was up 19% last quarter from a year earlier, and revenue came in higher as well- but this plus comes at a fairly high premium as the company trades at 23 times trailing earnings. That is probably a bit pricy for us.
None of these companies, IHS included, look like good buys right now. However, there are positive points to each of them (growth in some cases, cheapness in others, the insider purchase in the case of IHS) and we would be on the lookout for good news.
