A Member of Pat McKeough’s Inner Circle recently asked for his advice on a risk-assessment company that caters to property/casualty insurers and other businesses.
Pat likes the company’s steady revenue gains over the last five years and the fact that 80% of that revenue comes from subscriptions and long-term agreements. However, Pat notes the firm has made 28 tech-related acquisitions since 2015, which adds risk.
Q: Thank you, TSI, for all the great advice over the years. I’d like your opinion of Verisk (VRSK) on Nasdaq. Thank you.
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Verisk Analytics, (Symbol VRSK on Nasdaq; www.verisk.com), offers risk-assessment services for property/casualty insurers and other businesses. Its decision-analytics technology helps clients understand and manage risks through fraud detection and prevention. In addition to property/casualty insurers, the company serves the financial services and energy industries.
Verisk’s customers include all of the top 100 providers of property and casualty insurance (P&C) in the U.S. In addition, it serves all of the top 30 credit-card issuers in North America, the U.K. and Australia. The company’s clients also include 9 of the top 10 global energy providers and a wide range of governments across the globe.
For its P&C clients, the company focuses on helping them price their policies. To do that, each year, those firms send Verisk about 3.8 billion detailed individual records of insurance transactions. That includes data on insurance premiums collected and losses incurred. The company maintains a database of more than 21.0 billion statistical records—8.6 billion on commercial lines and 12.4 billion on personal lines.
To help insurers detect fraud, when a claim is submitted, Verisk’s system searches its databases and returns information about other claims filed by the same individuals or businesses (either as claimants or insurers). The system searches for matches in informational fields such as name, address, Social Security number, vehicle identification number, driver’s license number and tax identification number.
The company is also a leader in the field of catastrophe modeling used by insurers, reinsurers, financial institutions and governments to help control their risk from extreme events. Verisk has developed models for hurricanes, earthquakes, winter storms, tornadoes, hailstorms and floods in more than 100 countries as well as for global pandemics. In addition, governments in the U.S., Canada and China use its data to estimate potential losses for their crop insurance programs.
Most recently, the company introduced models to forecast terrorism and cyberattacks.
Verisk also continues to expand in the provision of data for the global energy, chemicals, and metals and mining industries. This includes analyzing data on thousands of oil and gas fields, mines, refineries and other assets. Businesses can use this service to, for example, determine how much to pay for acquisitions. The company also continues to expand in the area of processing and selling data for financial institutions, payment networks, alternative lenders, regulators and merchants.
Overall revenue has increased steadily over the last five years, up 26.1% from $2.07 billion in 2015 to $2.61 billion in 2019. Earnings have risen 43.6%, from $507.6 million, or $3.01 a share, in 2015, to $729.1 million, or $4.38 a share, in 2019.
The company earns around 80% of its revenues from subscriptions and long-term agreements.
In the three months ended December 31, 2019, Verisk’s revenue rose 10.2%, to $676.8 million from $613.9 million, a year earlier. Excluding one-time items, earnings rose 8.3%, to $188.4 million, or $1.13 a share, from $174.0 million, or $1.04.
The company’s balance sheet is solid: its long-term debt of $2.7 billion is just 10.2% of its market cap; it also holds $184.6 million in cash.
Inner Circle: Growth by acquisition adds risk, but overseas possibilities beckon
Since 2015, Verisk has made 28 acquisitions in order to diversify its client base and technology. Acquisitions made in 2019 include Keystone Aerial Surveys, an aviation & aerospace company providing aerial survey data and processing services, purchased for an undisclosed amount; Genscape, a global provider of real-time data and intelligence for commodity and energy markets, for $364 million; BuildFax, a property condition data service provider, for $4.0 million; and FAST, a software company for the life insurance and annuity industry, for $193.5 million.
Most of those purchases were small; however, Verisk’s growth-by-acquisition strategy does add risk.
In January 2020, the company’s Geomni business sold its imagery sourcing group to Vexcel Imaging, a leader in aerial imagery data, large-format aerial cameras, and photogrammetry software. As part of the deal, Verisk is now a minority owner in Vexcel and will have full access to its aerial imagery libraries. This alliance will add value by creating the definitive imagery and geospatial data library, unmatched in its size and quality.
Verisk has targeted a number of new opportunities. For example, it aims to use information from Internet-connected cars and smartphones to help auto insurance companies assess the risk of potential customers. In addition, only around 25% of its overall revenue currently originates overseas. Verisk hopes to double that over the next five years.
The company continues to buy back shares: it repurchased $300 million of its stock in 2019, after buying back $438.6 million worth in 2018. Verisk began paying dividends in the first quarter of 2019, at a $0.25 quarterly rate. It raised its quarterly dividend by 8% with the March 2020 payment, to $0.27 per share from $0.25. The shares yield 0.7%.
Recommendation in Pat’s Inner Circle: Verisk Analytics is a hold.
Comments
Bill
Whenever I see a question from a member of the Inner Circle I notice what advice is given which seems mostly to be sell or hold at best. Recently there was a question about CVX ; on advice from another source, I had already bought a bit of CVX and was up by about 10 % then. TSI`s advice was to sell. I kept CVX and now am up over 50 % TSI has no clue as to when to sell; the worst examples were Teck Resources and more recently PD which is still above the price TSI said to sell; The sell signal should have been when it was high NOT AT THE BOTTOM !! Teck should have seen a sell signal at $ 60 plus and there is still only buy signals from below $ 4.00 up to above $ 60 and back down again. Disgusting !!
The stock you refer to is Cematrix, symbol CVX on the Toronto Venture Exchange. Cematrix is a Calgary-based manufacturer and installer of what it promotes as technologically advanced cellular concrete products. Trillions of dollars will be required to replace and upgrade aging infrastructure in the U.S. and Canada in the coming years. As the market leader in cellular concrete, Cematrix hopes that coming work will lead to sustained profitability. However, the company’s innovative product is still relatively unproven and the construction industry may remain wary of using new products to underpin their construction projects. We don’t recommend shares of Cematrix Corp.
On a general level, stock prices are volatile and largely unpredictable. No analyst gets it right every time. That’s why we focus on our three-part investment approach: Invest mainly in well-established companies, spread your money out across most if not all of the five main economic sectors, and downplay stocks that are in the broker/media limelight.
You can certainly isolate individual stocks from our recommendations that have dropped in value over time….but overall, we think you’ll find we outdo most of our competitors.
We aim to spot problems in advance and anticipate stock declines – but not all surprises are evident. In turn, that’s why we recommend keeping any one stock to a small part of your portfolio. That way the stocks that decline will be offset by others that rise.
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Whenever I see a question from a member of the Inner Circle I notice what advice is given which seems mostly to be sell or hold at best. Recently there was a question about CVX ; on advice from another source, I had already bought a bit of CVX and was up by about 10 % then. TSI`s advice was to sell. I kept CVX and now am up over 50 % TSI has no clue as to when to sell; the worst examples were Teck Resources and more recently PD which is still above the price TSI said to sell; The sell signal should have been when it was high NOT AT THE BOTTOM !! Teck should have seen a sell signal at $ 60 plus and there is still only buy signals from below $ 4.00 up to above $ 60 and back down again. Disgusting !!
The stock you refer to is Cematrix, symbol CVX on the Toronto Venture Exchange. Cematrix is a Calgary-based manufacturer and installer of what it promotes as technologically advanced cellular concrete products. Trillions of dollars will be required to replace and upgrade aging infrastructure in the U.S. and Canada in the coming years. As the market leader in cellular concrete, Cematrix hopes that coming work will lead to sustained profitability. However, the company’s innovative product is still relatively unproven and the construction industry may remain wary of using new products to underpin their construction projects. We don’t recommend shares of Cematrix Corp.
On a general level, stock prices are volatile and largely unpredictable. No analyst gets it right every time. That’s why we focus on our three-part investment approach: Invest mainly in well-established companies, spread your money out across most if not all of the five main economic sectors, and downplay stocks that are in the broker/media limelight.
You can certainly isolate individual stocks from our recommendations that have dropped in value over time….but overall, we think you’ll find we outdo most of our competitors.
We aim to spot problems in advance and anticipate stock declines – but not all surprises are evident. In turn, that’s why we recommend keeping any one stock to a small part of your portfolio. That way the stocks that decline will be offset by others that rise.