Investors: Why You Need to Buy Thomson Reuters (TSX:TRI) Right Now

Why Thomson Reuters Corporation (TSX:TRI)(NYSE:TRI) is a good buy at the current price.

| More on:
Dice engraved with the words buy and sell

Image source: Getty Images.

Shares of Thomson Reuters Corporation (TSX:TRI)(NYSE:TRI) have gained 38.5% year to date. The stock is trading at $89.5, which is 5% below its 52-week high and 42.3% above its 52-week low. Shares have almost doubled in the last five years. So, why is TRI a good buy despite gaining significant value in 2019?

Thomson Reuters stock is undervalued

Thomson Reuters is a leading provider of business and financial information services, with several tools and software products for business, tax and compliance professionals.

Analysts expect TRI to increase sales from $5.5 billion in 2018 to $5.93 billion in 2019, a rise of 7.8% year over year. Sales are then estimated to rise by 4.8% to $6.2 billion. So why am I excited about a company that is growing sales in the single digits?

TRI is able to grow the bottom line at a far higher pace. In 2019, TRI’s earnings per share (EPS) is estimated to grow by 61.3%. The company is also expected to increase EPS by 60.3% in 2020 and at an annual rate of 44% in the next five years.

Comparatively, TRI stock is trading at a forward price-to-earnings multiple of 46, indicating that the stock is undervalued looking at its earnings growth. Its operating leverage is expected to increase from 1.9 times in 2019 to 7.5 times in 2020, which will help the firm expand profit margins at a robust pace.

TRI’s high operating leverage will help improve EBITDA from $1.36 billion in 2018 to $2.01 billion by the end of 2021. Operating profit is expected to rise from $855 million to $1.41 billion in the same period.

Organic growth driving sales higher

Thomson Reuters launched two artificial intelligence-powered products in the second quarter of 2019. It also completed two acquisitions in the June quarter. The company is optimistic about creating shareholder value over the next few years driven, by the merger of its former market data and trading assets with the London Stock Exchange Group.

In the June quarter, TRI’s organic sales rose 4%, the company’s highest organic growth since 2008. This growth was driven by recurring sales that rose 5% and transaction revenue that rose 2%.

Recurring sales for TRI’s Legal, Corporate and Tax & Accounting businesses were 88% of total sales and rose 6% year over year in the second quarter. The company expects the strong performance of these segments to drive revenue for the rest of 2019.

Company CEO Jim Smith, is optimist about long term growth and during the earnings call he stated, “As we look to 2020 and beyond, we’re working to build a faster growing business based on a sustainable, recurring revenue model that should drive consistent margin improvement and steady growth and free cash flow per share.”

It appears that Thomson Reuters has managed to successfully turnaround its performance, as things were looking quite bleak couple of years back.

The verdict

TRI is looking to bank on the growth of technology-led workforce solutions that help enterprises improve efficiency and employee productivity. It aims to complement organic growth by acquiring businesses that will have a multiplier effect when integrated with in-house and existing workflow solutions.

The current valuation of Thomson Reuters provides significant upside potential for investors. It is a stable company with strong fundamentals and should be an attractive pick at the current price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Tech Stocks

woman retiree on computer
Tech Stocks

2 Top TSX Growth Stocks to Buy Today and Hold for 10 Years

Given their long-term growth prospects and discounted valuations, these two growth stocks could deliver multi-fold returns in the long run.

Read more »

hot air balloon in a blue sky
Dividend Stocks

3 Roaring Stocks to Hold for the Next 20 Years

Sure, there are stocks roaring upwards in the last year, but these three can claim doing it for decades.

Read more »

A chip in a circuit board says "AI"
Tech Stocks

How to Invest in Stock in Canada

Are you looking for growth from our neighbours to the south? This tech stock has it, but how can Canadians…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Better Buy in July: Passive-Income Plays or Growth Stocks?

Will July mark the beginning of an economic recovery? Should you consider investing in passive income or growth stocks ahead…

Read more »

A chip in a circuit board says "AI"
Tech Stocks

This is the Best AI Stock to Buy Right Now

When it comes to AI stocks, Nvidia stock should jump to mind. But don't forget about the absolute dominance of…

Read more »

Choose a path
Tech Stocks

BB Stock’s Dismal Earnings: I’ll Stay Away

BlackBerry Inc (TSX:BB) stock crashed after earnings. Here's why I'm still staying away.

Read more »

sad concerned deep in thought
Tech Stocks

Is the Worst Over for BlackBerry Stock?

BlackBerry stock has been burning investors' money for the last four years. Is the worst over for this stock? Here…

Read more »

Person uses a tablet in a blurred warehouse as background
Tech Stocks

1 Super Tech Stock (Besides NVIDIA) to Buy Hand Over Fist in 2024

A TSX super tech stock could deliver comparable or far better returns than the AI king across the border.

Read more »