FactSet Research System (NYSE: FDS) stock is down more than 6% following the Q3 earnings release on a knee-jerk reaction to the news. The company issued a tepid report and guidance but not the kind of news to cause such a move. The takeaway from the report is that growth is in the picture, margins are improving, cash is flowing, and the capital return program is sound. Those are reasons to buy a stock when it is down, and there is reason to believe this stock is at or near its floor.

The sell-side has been warming to the name and helped to put a floor in the price action earlier this year. Assuming they still see what they saw before, they should step in and support the market at the bottom of the trading range. 

The analysts rate the stock at Hold, which is significant because it is up from Reduce, and the price target is firm. The price target has fluctuated over the past 12 months but is within a tight range, implying that at least 10% upside is possible. The most recent revision tracked by Marketbeat is a price target increase from Stifel a day before the Q3 results were released. They have the stock pegged at $440 or about 11% above the post-release action, and the institutional activity is also shifting into retail investors' favor.

The institutional activity is mixed over the past year, consistent with range-bound price action in the stock, but shifted to buying in Q2. That is consistent with a recent bounce in price action that shows support at the bottom of the multi-year trading range. A move back to that level could trigger another surge in buying. 

FactSet Research Systems Outperforms, Adjusts Guidance

Factset Research Systems had a solid quarter despite macroeconomic headwinds. The worst that can be said is that reiterating guidance for the year is tepid, considering the outperformance in Q3. Regardless, the company is guiding for double-digit growth on the top and bottom lines, sufficient to sustain the capital return program. The Q3 revenue of $529.81 is up 8.4% compared to last year, beating the consensus by a slim margin. The gain was driven by strength in all regions, led by a 10% gain in Asia Pacific, with 8% growth in the Americas and 7.5% in Europe. 

The margin news is mixed. The GAAP margin improved by more than 1200 basis points due to 1-offs in the prior year while the adjusted margin contracted. The good news is that margin contracted less than expected, resulting in bottom-line strength, and margin strength is expected to continue. The adjusted $3.79 is up 0.8% compared to last year and outpaced consensus by $0.19. That’s 520 basis points better than expected compared to only 30 bps of top-line strength. 

The company reiterated its outlook for revenue which is good enough under the current conditions. In addition, it raised the outlook for margin and earnings growth from 10% to 13%. That puts EPS in a range of $14.75 to $15.15, which is $0.25 higher at the midpoint than before. This compares well to the Marketbeat.com consensus of $14.80 but was insufficient to spur the bulls into action. 

Capital Returns Support FDS Price Action

Factset isn’t a high-yield with a payout of less than 1.0%, but it is a safe payout and a growing distribution. The company pays only 24% of earnings with earnings growth in the future, so it should be able to sustain the growth trajectory. The company has been increasing at a 9.5% pace in the last few years and repurchasing shares. Repurchases were worth $67 million in Q2 but were offset by share-based compensation.  

The price action in FDS shares fell more than 5% following the guidance update but is already showing signs of support. Support is evident at the $390 level, which has been significant many times. Assuming the market can rebound from that level again, this stock should continue to move sideways within its range.