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Topic: Growth Stocks

DUN & BRADSTREET CORP. $82 – New York symbol DNB

DUN & BRADSTREET CORP. $82 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 40.9 million; Market cap: $3.4 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.0%; TSINetwork Rating: Average; began operating in 1841 and is now the world’s largest provider of credit reports on individual companies. Its database contains information on 220 million businesses in over 200 countries. Companies use these reports to make lending and purchasing decisions and to cut their credit losses.

The company gets 63% of its revenue from credit reports. The remaining 37% comes from other information products, including software to help businesses manage customer data and websites.

Why Dun & Bradstreet is different

We recently recommended that investors sell Moody’s (New York symbol MCO) and McGraw-Hill Companies (New York symbol MHP), which owns Standard & Poor’s. That’s because the U.S. Justice Department has accused Standard & Poor’s of failing to downgrade mortgage-backed securities even though it knew home prices were falling and borrowers were having trouble repaying their loans. The threat of a similar lawsuit will probably also weigh on Moody’s stock for years.

However, Dun & Bradstreet evaluates individual companies, not their bonds. As a result, it played no role in the 2008-2009 subprime mortgage crisis.

Dun & Bradstreet’s revenue fell 2.9%, from $1.73 billion in 2008 to $1.68 billion in 2010. That’s because the recession cut lending activity and demand for its reports. In 2011, revenue rebounded by 4.9%, to $1.76 In 2012, revenue fell 5.4%, to $1.66 billion. If you disregard the impact of businesses that the company sold during the year, revenue would have fallen 1%, as the uncertain economy prompted businesses to cut spending on information products.

Strong gains since last downturn

Earnings fell 2.2%, from $291.2 million in 2008 to $284.7 million in 2010. However, Dun & Bradstreet is an aggressive share repurchaser, so its earnings per share rose 7.2%, from $5.27 to $5.65. Earnings rebounded to $318.8 million, or $6.94 a share, in 2012.

Dun & Bradstreet aims to boost its long-term revenue growth by making its data 30% more accurate. In 2012, it spent $30.3 million (or 1.8% of its revenue) on upgrading its computer systems and other related initiatives.

The company’s sound balance sheet gives it plenty of room to keep investing in new projects and making acquisitions, particularly in overseas markets, which supply just 26% of its revenue. Its long-term debt of $1.3 billion is a moderate 38% of its market cap. It also holds cash of $149.1 million, or $3.61 a share.

Brand name is an overlooked asset

Earnings should rise to $7.51 a share in 2013. The stock trades at 10.9 times that estimate. That’s a low p/e ratio in light of the company’s leading market share and well-known brand. Dun & Bradstreet’s increasing focus on electronic reports also cuts its production and distribution costs. Moreover, the company has a long history of raising its dividend. The current annual rate of $1.60 a share yields 2.0%.

Dun & Bradstreet is a buy.


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