It's no news flash we're inundated with data. Taking that information and transforming it into something that's useful takes talent and when done properly people are willing to pay for it. That's what information services provider IHS does, running reams of data across multiple disciplines through a funnel and producing a meaningful product that gives its clients insights they can take action on.
It just reported earnings yesterday that caused its stock to shoot through the $100 level for the first time since September, so let's take a closer look at whether IHS will be able to maintain this lofty level for an extended period of time.
1-Year Stock Return
Return on Investment
Estimated 5-Year EPS Growth
Dividend and Yield
Source: FinViz.com. N/A = not applicable; IHS does not pay a dividend.
Through a combination of organic growth and high-octane acquisitions, IHS was able to push revenue 12% higher in the quarter. Since 2005, the information analyzer has made approximately 50 acquisitions that it deems as essential to achieving profitable growth long term, but also allowing it to have broad expertise in many industries including energy and natural resources, defense, chemicals, transportation, manufacturing, and technology. Yet they also accounted for 8% of the revenue reported in the fourth quarter and 11% of full-year revenue .
While organic revenue amounted to just 4% of the growth IHS record in the quarter, its subscription-based revenue grew 7% without the benefit of acquisitions. That's important because the segment is IHS' largest, accounting for three-quarters of the total. Although smaller in size, non-subscription revenues -- which would include research and analysis and modeling and forecasting -- have been growing steadily despite the difficult economic situation.
Energy, where it competes against the likes of Accenture , Deloitte Touche, and others, is IHS' bread and butter, representing almost 47% of its revenue. Another third comes from product life cycles where it analyzes design and supply chain issues. Its acquisition of the respected iSuppli gave it greater reach into the tech world where it still competes against Thomson Reuters and SAI Global.
Although the rest of its divisions comprise around 20% of revenue, within that category are some important publications like Jane's Defence Weekly, IHS Global Insight, and more, though McGraw-Hill , Gannett , and even SAP and Moody's put out their own thoughtful publications and offer significant insight and reach into the marketplace.
I'll drink to that
Almost half of its revenues are transacted outside of the U.S., but less than a third are transacted in currencies other than U.S. dollars, so investors need to be mindful that as the U.S. dollar strengthens, it will have a negative impact on IHS' performance. And if rocky financial times rear their head again, we could see IHS miss estimates like it did in the third quarter. Non-subscription revenues tend to be more sensitive since they're not essential (to the client, anyway) and can be postponed to a later date when money's more certain.
At 50 times earnings and 23 times estimates, IHS is no discount bin denizen. Dun & Bradstreet , for example, goes for just 12 and 10 times, respectively, while Thomson is 14 times estimates. It seems to me IHS is a bit pricey now and a lower valuation would be more appropriate. So I'm rating IHS to underperform the broad market indexes on Motley Fool CAPS, the 180,000-member investor community that translates informed opinion into stock ratings of one to five stars. That the business information provider carries a three-star rating suggests investors are hedging their bets too, but you can tell me in the comments section below if you have additional insights into this information analyst.
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The article Is IHS Really Worth More Than $100? originally appeared on Fool.com.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Accenture and Moody's. The Motley Fool owns shares of McGraw-Hill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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