Blue Chip Stocks: Thomson Reuters focuses on digital platform

Thomson Reuters Corp. will sell its intellectual properties business, and likely repurchase shares with the proceeds – something that should boost earnings per share along with the ongoing migration of clients over to new digital platforms.

THOMSON REUTERS CORP. (Toronto symbol TRI; www.thomsonreuters.com) mainly sells information products to financial clients, such as banks and brokerages. In 2015, this business supplied 52% of Thomson’s revenue.

The company also sells specialized information to professionals in the legal (27%); tax and accounting (11%); and intellectual property and science (8%) fields. Its Reuters news division supplies the remaining 2%.

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Thomson now plans to sell its intellectual property business. It will probably use the expected proceeds of $3 billion to buy back its own shares (all amounts except share price and market cap in U.S. dollars). The sale should close later this year.

The company’s revenue in the three months ended March 31, 2016, fell 1.0%, to $2.79 billion from $2.82 billion a year earlier. Thomson’s overseas operations in Europe and Asia supply 40% of its revenue, and the high U.S. dollar hurts their contribution. Without exchange rates, revenue gained 1%.

Blue Chip Stocks: Dividend yield 3.3%

Thomson also continues to enjoy the benefits of its recent cost-cutting plan.

Its earnings jumped 19.2%, to $367 million from $308 million.

Due to fewer shares outstanding, earnings per share gained 23.1%, to $0.48 from $0.39.

The company’s earnings should continue to expand as its customers move from its older, less-profitable electronic terminals (delivering news and financial data to traders) to its newer Eikon platform. The company expects to complete the switchover by March 2017.

Thomson’s long-term debt of $6.4 billion is a moderate 21% of its market cap. It also holds cash of $869 million.

The company will probably earn $2.00 a share for all of 2016, and the stock trades at 20.6 times that estimate. The $1.36 dividend yields 3.3%.

Recommendation in The Successful Investor: HOLD.

For our view on which of Canada’s blue chip banks may be your best buys, read How to decide which Canadian bank is best to invest in.

For our recent report on one of Canada’s leading retail blue chip stocks, read Canadian Tire Corp. aims to expand stores, dividends.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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