THOMSON REUTERS CORP. $32 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 828.6 million; Market cap: $26.5 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) divides its operations into two divisions: Markets accounts for 60% of the company’s revenue and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%).
Thomson Reuters took its present form when the Ontario-based Thomson Corp. bought the U.K.-based Reuters news agency in April 2008 for $17 billion in cash and shares (all amounts except share price and market cap in U.S. dollars).
In the three months ended March 31, 2009, Thomson Reuters’ revenue soared 70.3%, to $3.1 billion from $1.8 billion. However, if you assume that Thomson bought Reuters at the start of 2007, sales would have declined 3.3%. The drop was due to the negative impact of the higher U.S. dollar, which hurts the value of the company’s overseas sales. If you disregard exchange rates, revenue would have risen 3%.
Earnings fell 9.3%, to $332 million, or $0.40 a share, from $366 million, or $0.44 a share. The drop was caused by costs related to the integration of Reuters. These lowered earnings by $0.07 a share.
Thomson Reuters has cut its costs by $850 million a year since the merger. It has done this by eliminating duplication. This includes cutting jobs and selling equipment. It should easily reach its $1-billion annual savings goal by the end of 2011. This rises to $1.4 billion when you include savings from Thomson’s two older restructuring plans, which it started before it bought Reuters.
Despite the damage that the recession has done to the financial industry, banks and portfolio managers rely on Thomson Reuters’ information to run their businesses, so the long-term outlook for this business remains bright.
As well, sales of information products to professionals tend to remain steady regardless of the direction of the economy. This helps cut Thomson Reuters’ risk. Moreover, the company is a leader in many of the fields it serves, which makes it harder for its customers to switch to a competitor.
The company should earn $1.79 U.S. a share this year, and the stock trades at a reasonable 15.3 times that estimate. The $1.12 U.S. dividend yields 4.1%.
Thomson Reuters is a buy.
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