THOMSON REUTERS CORP. $29 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 836.8 million; Market cap: $24.3 billion; Price-to-sales ratio: 1.7; Dividend yield: 4.5%; TSINetwork Rating: Above Average; www.thomsonreuters.com) has two main divisions: Markets (which supplied 57% of Thomson Reuters’ 2010 revenue and 48% of its earnings), sells news and information products to banks and other financial institutions. Professional (43%, 52%) sells information to professionals in the legal, taxation, accounting and scientific research fields.
Thomson Reuters recently said it plans to sell its healthcare business, which sells data and software that helps hospitals, clinics and health-care professionals cut costs and reduce fraud. In 2010, this division accounted for $450 million, or 3%, of the company’s revenue of $13.1 billion (all amounts except share price and market cap in U.S. dollars).
Thomson Reuters may use proceeds from the sale to make more acquisitions, particularly in developing markets, where demand for reliable information is growing quickly.
For example, in May 2011 the company bought Mastersaf, a Brazilian firm whose software helps businesses comply with increasingly complex tax and accounting laws. In all, Thomson Reuters spent $733 million buying other related companies in the first half of 2011.
These acquisitions are part of the reason why the company’s revenue rose 7.2% in the quarter ended June 30, 2011, to $3.4 billion from $3.2 billion a year earlier. Earnings rose 26.5%, to $429 million, or $0.51 a share, from $339 million, or $0.41.
These earnings exclude one-time costs related to Thomson Corp.’s 2008 merger with the U.K.-based Reuters news agency. To date, the the merger has let the company cut its annual costs by $1.54 billion, mainly by closing overlapping operations. It expects to reach its goal of $1.7 billion in annual savings when it finishes integrating Reuters by the end of 2011.
Thomson Reuters is in a good position to make more acquisitions. Its long-term debt of $7.0 billion is a manageable 29% of its market cap. It holds cash of $713 million, or $0.85 a share.
Investors are concerned that the European debt crisis and the weak U.S. economy will prompt the company’s biggest clients to cut spending on information products. That fear has hurt the stock, and it now trades at 14.1 times the $2.02 U.S. a share that the company will probably earn in 2011. That’s a reasonable p/e ratio in light of Thomson Reuters’ long-term earnings prospects.
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