Verisk (VRSK) Down 20.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Verisk Analytics (NASDAQ:VRSK). Shares have lost about 20.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Verisk due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Verisk Beats on Q4 Earnings & Revenue Estimates

Verisk Analytics reported solid fourth-quarter 2019 results, wherein the company’s earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings per share of $1.13 beat the consensus mark by a penny and improved 8.7% on a year-over-year basis. The company’s bottom line benefited from organic growth, contributions from acquisitions and lower average share count, which were partially offset by the rise in depreciation and amortization expense, interest expenseand a higher effective tax rate.

Revenues of $676.8 million beat the consensus estimate by 1.1% and improved 10.2% year over year on a reported basis and 5.4% on an organic constant-currency (cc) basis.

On Feb 1, 2020, the company completed the previously announced sale of its aerial imagery sourcing group to Vexcel Imaging in exchange for a minority interest in Vexcel. Through this deal, Verisk will get access to a geospatial data library. Further, it enables Verisk to focus solely on aerial data analytic solutions to better serve commercial and insurance customers. On Feb 5, 2020, the company inked a deal to transition its Argus Data Warehouse business to a partner to focus on its core analytics capabilities. On Feb 14, 2020, the company completed the sale of its compliance background screening business for $24 million in cash.

Segmental Performance

Insurance segment revenues totaled $468.9 million, up 7.5% year over year on a reported basis and 5.2% in organic cc.

Within the segment, underwriting and rating revenues of $318.5 million rose 9.9% on a reported basis and 8.2% in organic cc. The improvement was primarily driven by increase in industry-standard insurance programs, property-specific underwriting and catastrophe modeling solutions revenues. Claims revenues amounted to $150.4 million, which improved 2.8% on a reported basis but declined 1% in organic cc. The upside wasdriven by claims analytics, workers’ compensation claim solution services, and repair cost estimating solutions.

Energy and Specialized Markets segment revenues amounted to $160.5 million and improved 23.3% year over year on a reported basis and 7.1% in organic cc. The improvement can be attributed to revenues from market and cost intelligence solutions, core research revenues, and environmental health and safety service.

Financial Services segment revenues of $47.4 million declined 0.3% year over year on a reported basis but improved 2.1% in organic cc. The segment benefited from increase in fraud and credit risk management solutions and portfolio management solutions, which was partially offset by declines in enterprise data management revenues.

Operating Results

Adjusted EBITDA of $318.8 million increased 10.3% on a reported basis and 9% in organic cc. Adjusted EBITDA margin of 47.1% was flat compared with the prior-year quarter.

Operating income in the fourth quarter was $206.6 million compared with $216.2 million in the prior-year quarter. Operating margin was 30.5% compared with 35.2% in the year-ago quarter.

Balance Sheet and Cash Flow

Verisk exited fourth-quarter 2019 with cash and cash equivalents of $184.6 million compared with $311.8 million at the end of the prior quarter. Long-term debt came in at $2.65 billion compared with $2.67 billion at the end of the previous quarter.

The company generated $176.4 million of cash from operating activities and capex was $64 million. Free cash flow was $112.4 million.

Share Repurchases & Dividend Payout

During the fourth quarter of 2019, through an accelerated share repurchase (ASR) agreement, Verisk repurchased roughly 700,000 shares at an average price of $145.07 for a total cost of $100 million. The company also entered into an additional $50 million ASR agreement. The associated shares will be delivered and settled in February 2020. As of Dec 31, 2019, the company had $128 million under its share repurchase authorization.On Feb 12, 2020, the company's board of directors approved an additional authorization of $500 million.

The company paid out a cash dividend of 25 cents per share on Dec 31.On Feb 12, 2020, the company's board of directors approved a dividend hike of 8%, raising the quarterly cash dividend from 25 cents to 27 cents, payable on Mar 31, 2020, to shareholders of record as of Mar 13, 2020.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Verisk has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Verisk has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.