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Why Is Verisk (VRSK) Up 5.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Verisk Analytics (VRSK). Shares have added about 5.6% in that time frame, outperforming the S&P 500.

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

Verisk Q4 Earnings & Revenues Miss Estimates

Verisk Analytics reported disappointing fourth-quarter 2020 results, with earnings and revenues lagging the Zacks Consensus Estimate.

Adjusted earnings per share of $1.27 missed the consensus mark by 3.1% but rose 12.4% on a year-over-year basis. The year-over-year upside can be attributed to cost discipline in the business, coronavirus-led reduction in travel expenses and lower average share count.

Revenues of $713.3 million missed the consensus estimate by 0.5% but increased 5.4% year over year on a reported basis and 3.5% on an organic constant-currency (cc) basis.

Segmental Performance

Insurance segment revenues totaled $511.9 million, up 8.5% year over year on a reported basis and 7.4% on an organic cc basis.

Within the segment, underwriting and rating revenues of $355.1 million rose 10.6% on a reported basis and 6.8% on an organic cc basis. The upside was primarily driven by an annual increase in prices derived from continued enhancements of the solutions’ contents within the industry-standard insurance programs, sale of expanded solutions to existing customers in commercial and personal lines, and contributions from catastrophe-modeling services. These increases were partially offset by a decrease in certain transactional revenues.

Claims revenues amounted to $156.8 million, improving 4.2% on a reported basis and 8.8% on an organic cc basis. The top line was positivelyimpacted by repair cost estimating solutions revenues, claims analytics revenues, and workers compensation claims resolution services.

Energy and Specialized Markets segment revenues of $163.3 million increased 3.5% year over year on a reported basis but declined 3.9% on an organic cc basis. The uptick can be attributed tocontributions from the Genscape acquisition, environmental health and safety-service solutions, and core research. These were partially offset by declines in cost-intelligence solutions' implementation projects, which did not reoccur, and consulting revenues in connection with the COVID-19 pandemic.

Financial Services segment revenues of $38.1 million declined 19.6% year over year on a reported basis and 13% on an organic cc basis. The segment was weighed down bylower levels of project spending from the company’s bank customers, stemming from the COVID-19 pandemic.

Operating Results

Adjusted EBITDA of $344 million increased 7.9% on a reported basis and 4.9% on an organic cc basis. Adjusted EBITDA margin rose to 48.2% from 47.1% in the prior-year quarter.

Balance Sheet and Cash Flow

Verisk exited fourth-quarter 2020 with cash and cash equivalents of $218.8 million compared with $309.4 million at the end of the prior quarter. Long-term debt of $2.69 billion remained flat sequentially.

The company generated $248.9 million of cash from operating activities and capex was $65 million. Free cash flow was $176.5 million.

Share Repurchases & Dividend Payout

The company paid out a cash dividend of 27 cents per share on Dec 31. On Feb 17, the company's board of directors approved a dividend hike of 7.4%, thereby increasing the quarterly cash dividend to 29 cents per share. The dividend will be paid out on Mar 31, 2021, to holders of record as of Mar 15, 2021.

During the reported quarter, through the accelerated share repurchase (“ASR”) program, the company repurchased almost 260, 000 shares at an average price of $190.19, for a total cost of $50 million. The company has also entered into an additional $50 million ASR agreement, wherein the associated shares will be delivered and settled in March 2021. As of Dec 31, 2020, the company had $279 million available under its share repurchase authorization. On Feb 16, 2021, the company's board of directors approved an additional authorization of $300 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Verisk has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Verisk has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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