Publishing company Thomson Reuters Corp is taking Wall Street by surprise today, falling to $161.96 and marking a -4.3% change compared to the S&P 500, which moved 1.0%. TRI is -15.72% below its average analyst target price of $192.17, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Thomson Reuters Corp has underperfomed the S&P 500 by -16.1%, moving -0.6%.
Thomson Reuters Corporation operates as a content and technology company in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company is a consumer cyclical company, whose sales figures depend on discretionary income levels in its consumer base. For this reason, consumer cyclical companies have better sales and stock performance during periods of economic growth, when consumers have more of an incentive to spend their money on non-essential items.
Thomson Reuters Corp's trailing 12 month P/E ratio is 45.6, based on its trailing EPS of $3.55. The company has a forward P/E ratio of 37.1 according to its forward EPS of $4.02 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the consumer discretionary sector has an average P/E ratio of 20.93, and the average for the S&P 500 is 29.3.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Thomson Reuters Corp's free cash flow, which was $2.46 Billion as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $1.3 Billion and they've been growing at an average rate of 138.9%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in TRI have received an annualized dividend yield of 1.3% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Thomson reuters corp's P/B ratio is 5.79 -- in other words, the market value of the company exceeds its book value by a factor of more than 5, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Discretionary sector, which stands at 2.93 as of the third quarter of 2024.
Thomson Reuters Corp is likely undervalued at today's prices because it has a higher P/E ratio than its sector average, a higher than Average P/B Ratio, and generally positive cash flows with an upwards trend. The stock has mixed growth prospects because of its strong operating margins with a stable trend, and an inflated PEG ratio. We hope this preliminary analysis will encourage you to do your own research into TRI's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
