Over the past year, a lot of the various sectors in the market have rebounded from their coronavirus-driven bear market lows to not only drive back to their pre-pandemic highs, but also to establish new highs well above those previous levels. On the back of expectations that as the year progresses, health crisis pressures will also continue to abate and allow the economy to keep recovering, a lot of analysts and economists are forecasting strong economic growth for at least the next year or so. I think that makes sense, especially given the massive amount of stimulus the federal government has pumped into the continue over the past year, and the Fed’s continued determination – restated yesterday before the financial services committee of the House of Representatives – to remain accommodative for as long as necessary while also saying the recovery “has progressed more quickly than generally expected and looks to be strengthening.”
Continued accommodative policy generally means that investors and businesses can expect interest rates to remain low, with any future increases likely to be very moderately measured as the Fed has also reiterated its willingness to tolerate some volatility in inflation. The markets have taken most of their primary queues from the Fed for more than two decades, which to me to make the case for an extension of the market’s overall upward trend stronger, no matter how extended the market may be.
Enter Thomson Reuters Corp (TRI), a multinational company based in Toronto, Ontario, Canada that has been in existence since the 1850’s. The company deals in news and information services, legal, tax and accounting data. As you’ll see below, the company is a cash flow machine, with healthy operating profits, manageable debt, and a global footprint.
After following the market’s plunge at the beginning of 2020 to a bear market low at around $57 in mid-March, the stock began to climb into a solid long-term upward trend that saw the stock peak at $90 at the end of February. After dropping to support at around $85 in early March, the stock is now pushing back towards that peak, and could be in position to break out to a new set of 52-week highs. The company’s fundamental strength, meanwhile looks pretty solid, with solid patterns of growth even during the pandemic that seem to have belied the past year’s broader conditions. Does the stock still carry a value proposition that makes TRI a good opportunity to buy a stock right now? Let’s find out.
Fundamental and Value Profile
Thomson Reuters Corp (Thomson Reuters) is a Canada-based provider of news and information for professional markets. The Company is organized in three business units: Financial & Risk, Legal, and Tax & Accounting. The Financial & Risk unit is a provider of critical news, information and analytics, enabling transactions and connecting communities of trading, investment, financial and corporate professionals. The Legal unit is a provider of critical online and print information, decision tools, software and services that support legal, investigation, business and government professionals around the world. The Tax & Accounting unit is a provider of integrated tax compliance and accounting information, software and services for professionals in accounting firms, corporations, law firms and government. The Company also operates Reuters, Global Growth Organization (GGO) and Enterprise Technology & Operations (ET&O). Thomson Reuters operates in over 100 countries. TRI’s current market cap is $43.4 billion.
Earnings and Sales Growth: Over the last twelve months, earnings increased by nearly 46% while sales increase 2.08%. Ih the last quarter, revenues grew by 38.5% while sales increased nearly 12%. TRI operates with a robust, healthy margin profile, however, with Net Income almost 19% of Revenues over the last twelve months. This number also improved to almost 35% in the most recent quarter.
Free Cash Flow: TRI’s free cash flow is healthy, at $1.4 billion over the last twelve months. This number increased significantly over the past year, from about $204 million at the beginning of 2020 and translates to Free Cash Flow Yield of 3.18%.
Debt to Equity: TRI has a debt/equity ratio of .39. Their balance sheet indicates their operating profits are more than adequate to repay their debt. Their balance sheet as of the most recent quarter shows about $507 million in cash and liquid assets against $4.9 billion; operating profits are more than adequate to service that debt.
Dividend: TRI pays an annual dividend of $1.62 per share, which translates to a yield of about 1.83% at the stock’s current price. The dividend has actually increased from about $1.38 per share before the fourth quarter of 2018.
Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to work with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term, fair value target around $86 per share. That means that TRI is pretty fairly valued at its current price, with a useful discount at around $64.50.
Here’s a look at the stock’s latest technical chart.
Current Price Action/Trends and Pivots: The red diagonal line measures the length of the stock’s upward trend since it hit a 52-week low around $90 about a month ago; it also informs the Fibonacci retracement lines shown on the right side of the chart. After that peak, the stock dropped back to support at around $85 before starting to build momentum again in the last couple of weeks that has the stock nearing its high. A push above $90 should see about $5 of upside based on the distance between recent support and current resistance, while a drop below $85 should find next support at around $82 per share.
Near-term Keys: While TRI doesn’t offer an attractive value proposition right now, TRI is a fundamentally solid company that sets it apart from a lot of other stocks in the marketplace. If you prefer focusing on short-term trades, you could use a break above $90 as a signal to buy the stock or work with call options, using $95 as a practical exit target. A drop below $85 could be a good signal to think about shorting the stock or buying put options, using $82 as a near-term target on a bearish trade.