Is Now the Time to Buy Experian?
Feb 22nd 2013 9:10PM
Updated Feb 23rd 2013 1:30PM
LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today, I am looking at Experian to determine whether you should consider buying the shares at 1,187 pence.
I am assessing each company on several ratios:
- Price/earnings (P/E) ratio: Does the share look good value when compared against its competitors?
- Price/earnings-to-growth (PEG) ratio: Does the share look good value factoring in predicted growth?
- Yield: Does the share provide a solid income for investors?
- Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
|Stock||Price||3-Yr. EPS growth||Projected P/E||PEG||Yield||3-Yr. Dividend Growth||Dividend Cover|
The consensus analyst estimate for this year's earnings per share is $0.84 (6% growth) and dividend per share is $0.34 (6% growth).
Trading on a projected P/E of 21.2, Experian appears to be more expensive than its peers in the support services sector, which are currently trading on an average P/E of around 19.3. In addition, its P/E and earnings growth rate give a PEG ratio of around 3.5, which implies the share price is expensive for the near-term earnings growth the firm is expected to produce.
Unfortunately, Experian offers a 1.8% yield, below the support services sector average of around 2%. On the other hand, Experian does have a three-year compounded dividend growth rate of 39%, implying the yield could soon overtake that of its peers.
Indeed, the dividend is just under two-and-a-half times covered by earnings, giving Experian plenty of room for further payout growth.
Is now the time to buy Experian?
Experian is the global leader in information services, specialising in credit-risk assessments, targeted marketing campaigns, and fraud prevention services. I believe this diverse range of services gives it a certain defensive nature.
Indeed, thanks to the constant demand for these services, Experian's earnings have grown at a steady rate of approximately 7% per year for the past five years, despite the obvious economic issues.
Furthermore, I believe this steady rate of growth is set to continue as the use of credit-related products continues to grow in developing markets. In fact, Experian recently reported within its January interim management statement that revenues had grown 11% in Latin America during the last three months of 2012. In addition, it said that revenues had grown 8% in the U.K. and Ireland, driven by a 26% rise in revenue from its consumer services division, which is responsible for credit checks.
That said, Experian's revenues are falling in Europe and, surprisingly, demand in Asia is slowing. However, revenues in North America are still solid and grew 7% during the three months to December.
All in all, Experian has achieved strong steady growth over the past few years and this looks set to continue. So, overall, I believe now looks to be a good time to buy Experian at 1,187 pence.
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
The article Is Now the Time to Buy Experian? originally appeared on Fool.com.Rupert Hargreaves does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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