THE DUN & BRADSTREET CORP. $97 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 59.4 million; Market cap: $5.8 billion; WSSF Rating: Average) provides credit reports and other information on 100 million companies in over 200 countries. Its clients use its products to make lending and buying decisions.
Revenues increased slowly, from $1.3 billion in 2002 to $1.5 billion in 2006. But thanks to a successful restructuring plan, profits before unusual items rose at a compound annual rate of 16.6%, from $2.15 a share (total $164.9 million) in 2002 to $3.97 a share ($258.4 million). The company aims to save a further $65 million in 2007.
Another factor in the company’s strong growth is the spread of the Internet. Dun & Bradstreet is making more of its information available to clients over the Internet, which improves the timeliness of data and cuts its distribution costs.
The company is also profiting from the rise in global trade, which has increased demand for information on overseas customers and suppliers. North America accounts for 75% of Dun & Bradstreet’s revenue, but revenue for its international operations is growing strongly. For example, a new joint venture doubled the company’s presence in China.
Dun & Bradstreet aims to spend between $300 million and $500 million on acquisitions in the next four years. Growing by acquisition is more risky than internal growth, but most of these will be small purchases that enhance the company’s overseas operations.
The company will probably generate $6.50 a share (or about $400 million in total) in cash flow in 2007, so it can easily afford to expand. It also has plenty of cash to meet its goal of buying back $200 million worth of its stock every year, which will offset the dilution from employee stock options. A new deal with a major computer outsourcing company should cut its capital spending needs, and free up more cash.
Profit in 2007 will probably rise to $4.62 a share, and the stock trades at 21.0 times that figure. That’s cheap in light of the strong earnings potential of its brand. The $1.00 dividend yields 1.0%.
Dun & Bradstreet is a buy.
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