FactSet Research Systems (FDS)

The company is a mid cap stock with a market capitalization of $2.53 billion. The trailing p/e is a very acceptable (for me) 23.29, with a forward p/e (fye 31-Aug-09) of 18.53). With rapid growth estimated to continue, the PEG ratio works out to an acceptable 1.15 (generally I prefer PEG's between 1.0 and 1.5).

Looking at the Price/Sales ratio on 26th Mar 2008,the stock is reasonably priced with a Price/Sales [TTM] figure of 4.32 compared to the industry average of 4.78 per the Fidelity National Financial (FNF) research website. Profitability may be a little light compared to comparables, at least as measured by the Return on Equity [TTM] which comes in at 27.88% vs. the $31.41% ROE [TTM] of similary companies per Fidelity.

Finishing up withnumbers, there are 48.23 million shares outstanding with 42.87 million that float. Currently (as of 2/26/08) there are 4.89 million shares out short, representing 9.7 trading days of volume (the short ratio)--far in excess of my own '3 day rule' for significance. This is 11.3% of the float---and may have well resulted in a 'short squeeze' today on the back of the great earnings report and the surge in overall stock prices.

The company pays a dividend which on a 'forward basis' is $.48/share or yielding 1.00%. The last stock split, also noted above, was a 3:2 split on February 7, 2005.

Earnings show an equally consistent and impressive pattern of growth, growing from $.99/share in 2003 to $2.14/share in 2007 and $2.25/share in the TTM. The company also pays a dividend and has been steadily increasing it from $.15/share in 2003 to $.36/share in 2007 and $.42/share in the TTM. Outstanding shares have been extremely stable with 52 million shares reported in 2003 actually decreasing to 51 million in the TTM.

Free cash flow has been positive and has grown, except for a slight dip in the TTM, from $72 million in 2005 to $117 million in 2007 and $110 million in the TTM.

The balance sheet appears quite healthy to me with $155 million in cash, which by itself could easily pay off both the $64.9 million in current liabilities and the $28.7 million in long-term liabilities combined with plenty left over as well! Calculating the current ratio, the $242 million in total current asset, when divided by the $64.9 million in current liabilities, yields a very healthy ratio of 3.73.

FactSet is well-positioned for the potential elimination of soft dollars. The company has reduced its percentage of revenue derived from soft dollars to 24% currently, from 41% three years ago. Moreover, the customers still paying in soft dollars are large institutions, which would be likely to convert to hard dollars given their large operating budgets, of which FactSet would be a small portion. SEC Chairman Christopher Cox recently renewed the topic of soft dollars, indicating a preference to eliminate them completely. We believe that FactSet could gain share under such a scenario as asset managers seek to consolidate investment in software and systems to the most useful products.

FDS has a strong balance sheet with no long-term debt and $171.3 million in cash, cash equivalents, and short-term investments as of November 30, 2007. Management has also doubled its quarterly dividend level to $0.12 per share ($0.48 per share annually), up from the previous $0.06 per share ($0.24 per share annually) and also approved an additional $100 million share repurchase program in March 2007. The company currently has $27.8 million remaining for repurchases. During fiscal 2007, the company generated $155.9 million cash from operating activities and $119.5 million in free cash. Considering the strong and growing cash flows and healthy fundamental metrics, the company's dividend appears safe in analyst views and continued share repurchases are likely.