Verisk Analytics, Inc.’s (VRSK – Free Report) profitability is linked with direct premium growth, which is anticipated to improve in the long run. Shareholder-friendly policies are boosting the company’s share price. Meanwhile, higher operating expenses are putting the bottom line under pressure, and its low liquidity position might be a red flag for investors.
VRSK’s revenues are anticipated to increase 7.4% and 7.2% year over year in 2024 and 2025, respectively. Earnings are estimated to rise 16.1% in 2024 and 9.4% in 2025. The company has an estimated long-term (three to five years) earnings per share growth rate of 12%.
Factors That Auger Well for VRSK’s Success
Verisk’s subscription revenues represented 81% of the top line as of the nine months ended Sept. 30, 2024. Robust renewals and expanded relationships with customers led to 6.8% organic growth in subscription revenues. The company raised prices during contract renewals, which drove annualized recurring revenues.
VRSK’s transition from a transaction model to a subscription model has driven its recurring revenues. It is advantageous since subscription fees are paid in advance of providing services either quarterly or in full upon the commencement of the subscription period.
The company’s profitability has gained from direct premium growth, just like any insurance company. Growth in Property and Casualty insurers’ direct written premiums has been cyclical, with total industry premium growth declining from a high of 14.8% in 2002 to negative 3.1% in 2009. It increased to 5.1% in 2019 and the pandemic moderated this growth to 2.3% in 2020.
Despite the challenges faced during COVID-19, direct premium growth increased to 9.5% in 2021 and then to 9.7% and 10.1% in 2022 and 2023, respectively. The post-pandemic recovery makes us believe that the trend will continue in the long run, benefiting VRSK.
Verisk has a consistent record of rewarding its shareholders through dividend payments and share repurchases. In 2021, the company paid out $188.2 million in dividends and repurchased shares worth $475 million. In 2022, Verisk paid out $195.2 as dividends and repurchased shares worth 1.7 billion. In 2023, the company paid out $196.8 as dividends and repurchased shares worth $2.8 billion. Consistency in shareholder returns has the effect of boosting share prices as investors look for returns in unstable or uncertain markets.
Risks Faced by Verisk
The company’s personnel expenses carry a significant portion of costs of revenues, and selling, general and administrative expenses. Personnel expenses represented nearly 59% and 57% of the total operating expenses in 2022 and 2023, respectively. It includes salaries, benefits, incentive compensation, equity compensation costs, sale commissions, employment taxes, recruiting costs and outsourced temporary agency costs.
The number of employees will increase if VRSK continues to grow. Furthermore, hiring will rise to deal with a higher attrition rate. Although personnel expenses are higher for companies operating in the information industry, increasing employee salaries and wage expenses will put VRSK’s bottom line under pressure.
Verisk’s current ratio (a measure of liquidity) at the end of third-quarter 2024 was 0.82, lower than the industry’s 0.91. A current ratio of less than 1 often indicates that a company may have problems paying off its short-term obligations, which have also decreased 13.7% from the preceding quarter.
Image Source: Zacks Investment Research
VRSK’s Zacks Rank & Stocks to Consider
Verisk carries a Zacks Rank #3 (Hold) at present.
Some better-ranked stocks from the broader Zacks Business Services sector are ABM Industries (ABM – Free Report) and Cintas (CTAS – Free Report) , each sporting a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ABM Industries has a long-term earnings growth expectation of 5.2%. ABM delivered a trailing four-quarter earnings surprise of 11.6%, on average.
Cintas has a long-term earnings growth expectation of 12%. CTAS delivered a trailing four-quarter earnings surprise of 7.7%, on average.
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