FactSet: As Uncertainty Increases, We Are Decreasing Our FVE and Downgrading Our Moat Rating to None

Key Morningstar Metrics for FactSet

• Fair Value Estimate
  : $275.00
• Morningstar Rating
  : ★★★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : High

After reviewing FactSet’s FDS economic moat rating, we are downgrading it to none from narrow.

Why it matters: FactSet has historically generated strong returns on invested capital (18%, or 26% excluding goodwill, on average over the last three years). The downgrade reflects a dynamic and uncertain future as generative AI continues to be adopted and use cases evolve.

• Aside from CUSIP, we do not see FactSet’s solutions or functionalities as proprietary and non-replicable for its clients. We note that FactSet’s workstation and software offerings have meaningful competitors, and the rise of generative AI may alter the competitive and client landscapes.
• We continue to view CUSIP Global Services or CGS as moaty, given that it is an industry standard. However, we peg CGS at just 15% of the firm’s operating profit and, as such, it is not large enough to sway our moat rating.

The bottom line: We are reducing our fair value estimate to $275 per share from $360 following our moat downgrade. The reduction is largely driven by an increase in our cost of capital. Given the higher risk in a changed operating environment, we now peg the firm’s cost of equity at 9.0%, up from 7.5%.

• At current prices, we view FactSet as undervalued. Market fears largely relate to AI-related headwinds for long-term growth, in our estimation. As a result, we note that a strong quarter may be insufficient to assuage disruption fears.
• Due to the aforementioned uncertainty, we are adjusting our Uncertainty Rating to High from Medium.

Coming up: FactSet will report fiscal second-quarter results on March 31. FactSet typically increases prices for its Americas subscriptions during the fiscal second quarter.

• Aside from fiscal 2022-24 elevated pricing from a high inflationary environment, FactSet’s Americas pricing increased within a range of 1.0%-1.5% over the last 10 years. We model firmwide subscription pricing of 1.2% for fiscal 2026.