Thomson Reuters: Sustained Performance and Positive Future Projections Justify a Buy Rating
Thomson Reuters (NYSE: TRI) has recently captured the attention of investors and analysts alike with its notable fourth-quarter performance for 2023 and an optimistic outlook that spans over the next few years. This analysis aims to dissect these achievements and forecasts, offering insights into why Thomson Reuters stands as a compelling investment option.
The unveiling of Thomson Reuters’ financial results for the fourth quarter of 2023 revealed an impressive +8% earnings beat, with the company’s revenue growth expected to shift from a moderate low single-digit percentage to a robust high single-digit percentage in the forthcoming years. This shift underscores the company’s potential for accelerated growth and sustains the recommendation of a Buy rating for TRI shares.
A pivotal moment for the company could be its Investor Day presentation on March 12, 2024. Anticipations are high that announcements concerning new offerings, expansion into foreign markets, and additional revenue drivers will significantly bolster investor confidence in Thomson Reuters’ growth trajectory.
On February 8, 2024, Thomson Reuters reported a +14% sequential increase in revenue and a +3% year-over-year growth, totaling $1,815 million for Q4 2023. This aligns closely with analysts’ expectations and can be attributed to consistent operational excellence and strategic initiatives. The quarter also witnessed an impressive earnings per share (EPS) of $0.98, marking a +8% beat on consensus estimates and showcasing substantial year-over-year and quarter-over-quarter growth.
Trio factors were crucial in achieving this earnings outperformance: enhanced operating profitability owing to a favorable revenue mix and reduced restructuring expenses, a significant decrease in net interest expense attributed to effective deleveraging, and a reduction in outstanding shares due to aggressive buyback activities.
Looking ahead, Thomson Reuters has shared an encouraging outlook for both the near and intermediate term. For the fiscal year 2024, the company projects a revenue growth of +6.5%, outpacing analysts’ prior anticipations. Moreover, for 2025 to 2026, a target revenue compound annual growth rate (CAGR) in the range of 6.5%-8.0% is expected, highlighting the company’s confidence in sustaining high single-digit top-line growth. This optimism is backed by organic investments and a strategic shift towards high-growth assets through mergers and acquisitions (M&A).
Thomson Reuters also plans to leverage its significant financial flexibility for future M&As, supported by a favorable net debt-to-EBITDA ratio and ample debt headroom. While the company anticipates a temporary contraction in EBITDA margins in FY 2024 due to increased M&A integration costs, it forecasts margin expansion in the following years as these costs subside and operational efficiencies are realized.
In conclusion, the recommendation to Buy TRI shares is reaffirmed, supported by the company’s strong fourth-quarter performance and positive financial outlook for the coming years. The upcoming Investor Day in March could further catalyze the stock as Thomson Reuters is expected to dive deeper into its strategies for achieving its ambitious targets. Although its valuation may appear elevated with a forward normalized P/E of 43.5 times, this is consistent with historical averages, and the company’s robust financial outlook justifies such a premium.
Investors are counseled to consider Thomson Reuters as a valuable addition to their portfolios, banking on the company’s capacity to continue its growth momentum and deliver sustained returns. The company’s commitment to innovation, operational efficiency, and strategic market expansion pave the way for its future success and make it a noteworthy investment for those looking to capitalize on the thriving information services sector.
