For 2022, FactSet Research Systems, Inc. (FDS, Financial), a financial intelligence provider to the investment community, declined 16.8% and hurt performance for the year by 59 bps. FactSet shares declined as investors were worried about decelerating earnings growth with the company making accelerated investments in new tools and technology to spur revenue growth. However, the company is starting to see stronger revenue growth with improved margins, as recent investments start to generate returns. This has led to increased pricing power and new use cases without any change in retention rates. We expect further revenue and earnings growth in 2023 and beyond, as well as improved cash flow from its recent CUSIP acquisition. FactSet will likely use its increased cash flow for additional acquisitions and share repurchases. FactSet’s prospects remain favorable due to its large addressable market, strong financial technology expertise, and consistent execution on both new product development and financial results.
FactSet, which offers one of the leading financial intelligence systems for the asset management industry, continues to grow into new areas via fixed income, risk management, and, most recently, private equity. This should enable the company to grow and generate a steady stream of recurring cash flow that it uses for acquisitions, dividends, and buybacks. MSCI is a leading provider of investment decision support tools for the global investment community. The company’s underlying business largely continued to perform well despite the negative impact of broader market weakness on asset-based fee revenue. We retain long-term conviction, as MSCI owns strong, “all weather” franchises and remains well positioned, in our view, to benefit from numerous secular tailwinds in the investment community.
From Ron Baron (Trades, Portfolio)'s Baron Focused Fund fourth-quarter 2022 letter.
