FactSet: Bottom-Fishing Opportunity Amid Structural Resilience and Margin Recovery

The financial data and software sector has faced relentless scrutiny in recent years, with clients slashing budgets and competitors like Refinitiv vying for market share. Yet amid the turbulence, FactSet (FDS) stands out as a potential bargain. With its price-to-earnings (P/E) ratio near a five-year low, stabilizing revenue growth, and a pipeline fueled by AI-driven innovation, the company presents a compelling case for investors seeking a recession-resistant, growth-oriented equity.

Valuation: A P/E Near 5-Year Lows, But Growth Is Stabilizing

FactSet's P/E ratio has dropped to 26.40—a 41% discount from its 2021 peak of 43.08—despite consistent organic growth in its core Annual Subscription Value (ASV). This devaluation appears excessive given its recurring revenue model, which generates 82% of its ASV from predictable buy-side clients (asset managers, wealth firms) and 18% from sell-side institutions.

The company's forward P/E of 25.22 suggests markets are pricing in pessimism about near-term earnings. However, TTM EPS of $31.29 (as of June 2025) and a narrowing guidance range for FY2025 ($16.80–$17.40 diluted EPS) indicate management's confidence in execution.

Growth Catalysts: ASV Momentum and the AI Pivot

While FactSet's organic ASV growth slowed to 4.5% year-over-year in Q3 2025 (from peaks of 7.2% in 2024), the deceleration is sector-wide—not unique to FactSet. The company's client retention rates remain robust, with ASV retention exceeding 95% and client retention at 91%, underscoring the stickiness of its enterprise software.

The real story lies in strategic bets like its Intelligent Platform (AI-powered data analytics) and Pitch Creator (an AI tool for investment bankers). These innovations are driving wealth management ASV growth to double-digit levels for two consecutive quarters—a segment now accounting for nearly half of new business wins.

Margin Recovery: Post-FY25 Capex Peak Optimism

FactSet's margins have been squeezed by rising costs, including $270 million in amortization from acquisitions like LiquidityBook and Irwin. Yet CFO Helen Shan has signaled that FY2025 will mark the peak of capital expenditure, with a focus on cost discipline and “operational efficiency” in 2026.

With adjusted operating margins at 36.8% (down from 39.5% in 2023), there's room for recovery if execution improves. The shift toward recurring revenue (ASV vs. project-based services) and AI-driven automation could reduce variable costs, unlocking margin upside.

Navigating Headwinds: Why the Risks Are Priced In

Critics point to Refinitiv's aggressive pricing and client budget cuts in private equity and hedge funds. Yet FactSet's $2.26 billion ASV base (as of June 2025) is too large to be easily disrupted, and its enterprise solutions strategy (e.g., lowering clients' total cost of ownership) has deepened client loyalty.

Meanwhile, the stock's 25% underperformance vs. peers like Morningstar (36.99 P/E) suggests the market has already discounted these risks.

Investment Thesis: Buy the Dip, Target $500 by End of 2026

FactSet's valuation is a rare opportunity to own a $22 billion company with $2.3 billion in annual recurring revenue at a P/E below its historical average. With $3.0 billion in net cash, the balance sheet provides a safety net, while AI investments and geographic expansion (Asia Pacific ASV grew 7% in Q3) position it for long-term dominance.

Buy recommendation: The stock trades at $439.87, but a $500 price target by end-2026 (assuming 12x 2026 EPS estimates of ~$41.70) is achievable if ASV growth stabilizes at 5% and margins rebound to 38%.

Bottom Line

FactSet is a recession-resistant play with a rare confluence of undervaluation and growth catalysts. While short-term noise persists, the company's recurring revenue model and AI-driven innovations make it a must-own for long-term investors.