Verisk Analytics, a leading data analytics company serving the insurance industry, has recently undergone significant changes that have transformed it into a pure data analytics company dedicated to the insurance sector. In February 2022, Verisk divested its troubled Financial Services Business, which had faced challenges in adjusting pricing for customer contracts and experienced sluggish growth for several years. Then, in October 2022, Verisk divested its Wood Mackenzie business, a leading data analytics company in the energy, chemicals, metals, and mining industries.
These divestitures have positioned Verisk as a focused player in the insurance underwriting and claims markets, where they offer predictive analytics and decision-making solutions to help insurance companies manage costs and underwriting risks. Verisk’s products are crucial for insurance companies as they invest in AI and process automation to reduce operating costs and enhance risk management. The insurance industry is poised for a significant technology-driven transformation, and Verisk is well-positioned to capitalize on this trend, providing essential data analytics tools and sources to insurance companies.
Verisk’s recent financial performance has been strong, with both their Underwriting and Claims business segments experiencing robust growth. In Q2 FY23, the company’s organic revenue expanded by 9.8%, driven by 9.3% growth in Underwriting and an impressive 11.2% growth in Claims. They have raised their full-year guidance for FY23 and expect continued growth in revenue and earnings.
While Verisk’s growth is influenced by the profitability and underwriting cycles of P&C insurers, the majority of their revenue is subscription-based, providing stability and resilience during economic downturns. Additionally, Verisk maintains a robust balance sheet and has a substantial free cash flow generation, allowing them to invest in strategic initiatives and maintain financial strength.
From a valuation perspective, Verisk’s stock price may currently be overvalued. However, based on a discounted cash flow model and conservative assumptions, the fair value of their stock is estimated to be $190 per share. Therefore, if the stock price drops below this level, it may present an attractive buying opportunity for investors.
In conclusion, Verisk Analytics is a high-quality growth company dedicated to the insurance industry. Their recent divestitures have positioned them for improved growth and profitability, and their strong financial performance and industry trends suggest continued success in the future. While the stock may currently be overvalued, investors should consider buying Verisk if the stock price drops below $190.