Why Thomson Reuters shares rose more than 40% in 2021

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Despite yesterday’s pullback, equity markets gained significant momentum in 2021. The TSX has gained 20.8% year-to-date thanks to the economic recovery, quantitative easing programs and the reopening of markets. companies. One TSX giant that topped the index is Thomson reuters (TSX: TRI) (NYSE: TRI), which has returned over 40% to investors this year. Let’s see what drove the title to its highest records.

Outstanding quarterly results for Thomson Reuters

A company valued with a market capitalization of $ 57 billion, Thomson Reuters provides business information services around the world. It has five main areas of activity: legal professionals, Reuters News, Global Print, businesses, and tax and accounting professionals.

In the second quarter of 2021, its sales increased 9% to $ 1.53 billion, while organic growth was just under 7% compared to the same period a year earlier. Thomson Reuters adjusted EBITDA rose 5% to $ 502 million, and adjusted earnings per share stood at $ 0.48, indicating 9% year-over-year growth. The company managed to increase its free cash flow by 25% to $ 379 million.

The media heavyweight managed to increase its sales from $ 5.5 billion in 2018 to $ 5.98 billion in 2020. Its operating income rose from $ 775 million to $ 1.91 billion in the year. during this period.

Analysts following the stock expect sales to rise 4.9% to $ 6.28 billion this year and 4.7% to $ 6.57 billion in 2022. By comparison, its earnings per share is expected to grow at an annual rate of 15% over the next five years.

Based on these predictions, we can see that the Thomson Reuters stock is trading at a futures price / sell multiple of over nine, while its price / earnings multiple is also high at 60. It looks like the Thomson stock Reuters either trades at a premium and will remain vulnerable in the event of a market collapse.

While the TSX has returned 68% to investors in the form of dividend-adjusted returns over the past five years, Thomson Reuters has posted an impressive 186% gain since September 2016.

Strong financial data

Thomson Reuters valuation is very high, but its fundamentals remain strong. He ended the second quarter with a cash balance of $ 2.42 billion and carries $ 4 billion in debt on his balance sheet. The company generated $ 2 billion in cash flow from operations in the past year, which allows it to offer investors a dividend yield of 1.4%. A low payout rate of less than 12% suggests that the company has enough headroom to increase its dividends going forward.

Thomson Reuters also improved shareholder value through a buyback program. He recently announced a $ 1.2 billion share buyback program. The company has already returned $ 800 million to investors in the first six months of 2021 in the form of dividends and buybacks.

Thomson Reuters expects to save $ 600 million in operating expenses by 2023. It aims to reinvest $ 200 million in the company, which will translate into net savings of $ 400 million.

While Thomson Reuters has crushed the broader markets over the past decade, the stock remains vulnerable due to its foamy valuation and a volatile stock market. Analysts following the stock have a 12-month average price target of $ 113 on Thomson Reuters, 20% below its current price.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content. .

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


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