IHS Markit Is Still A Value
IHS Markit (NYSE: INFO) emerged as a value-play on data analytics earlier this year. The company is well-known for its role in the economic arena but also provides services to a wide array of businesses and industries. The two pillars of the investment thesis, at the time, was its value relative to peers and the outlook for growth. The company was trading at a significant discount to its peers with guidance pointing to revenue and EPS growth this year and next. That story helped push the stock to a new all-time high over the summer. Now, a full quarter down the road, that story hasn’t changed.
IHS Markit reports A Solid Quarter
The company reported top-line revenue of $1.07 billion or down -3.6% from the prior year. The figure is in line with the consensus estimate and no surprise to investors. On a segment basis, Financial services grew by 4.0% while the other three primary segments all declined. The Consolidated Market segment fell hardest, down -13%, while Resources and Transportation fell -9.0% and -5.0% respectively.
Net income came in at $164 million or $0.41 in GAAP earnings. GAAP earnings are $0.04 above consensus, adjusted earnings came in at $0.77, the former beat consensus by $0.04 while the latter by $0.08. Cash flow from operations topped $403 million with more than 75% of that free and available for use.
“In Q3, we delivered solid results as the markets we operate in have begun to recover at varying speeds. We are managing the COVID challenges well while continuing to make the right long-term decisions for the company, shareholders, and the communities that we operate in and serve,” said Lance Uggla, chairman, and chief executive officer at IHS Markit.
IHS Markit Reaffirms Guidance
IHS Markit issued a lowered guidance in the previous quarter that was offset by one thing; growth. Although the company posted negative revenue growth in the 2nd quarter and expected negative results in the 3rd it was expecting at least the possibility of positive growth for the year. Not only that but positive growth next year and for the two-year period spanning the pandemic. The new guidance reaffirmed the 2020 targets but lowered the range for 2021 revenue to 6% to 8%. The lowered revenue estimate is a mild concern but one offset by the fact the EPS range of 13% to 15% is intact.
"We are positioned to deliver results for the year that include recurring organic revenue growth, strong margin expansion, and double-digit normalized earnings growth and are exiting the year in (a) good position to achieve our 2021 outlook," says CFO Jonathan Gear.
IHS Markit Is An Undervalued Dividend Payer
IHS Markit committed to an aggressive capital return program last year that aims to give 50% to 70% of earnings to its shareholders. So far that means a dividend and healthy buyback plan that is still underway (I refer you back to cash-flow and free-cash-flow figures noted above). The dividend is only yielding about 0.90% but there is some expectation for increases based on the outlook. The dividend itself is only about 25% of consensus earnings for the year so there is plenty of room for future increases. I expect the company to issue its next declaration in October. It will be the fourth since the dividend was initiated. If there is going to be an increase my bet it will come after the next reporting cycle.
IHS Markit Is Giving A Very Bullish Signal
The Q3 earnings report has shares moving higher but not very much. And by that, I am surprised because the charts are showing a very strong buy signal. The stock corrected over the last month and has since formed a bottom. The bottom is a double-bottom that confirmed with a break above the short-term moving average just one trading session ago. That bottom and break are both confirmed by the indicators which together are showing a very strong buy. Stochastic is the most bullish having formed a series of higher lows low in the range while throwing off trend-following bullish crossovers the whole time. I will be surprised if this stock does not retest the all-time high at least.
