Tuesday, June 29, 2010

Thomson Reuters Corp 2

I originally bought this stock (TSX-TRI, NYSE-TRI) in 1985. The stock I bought was Thomson. Since that time, I have earned a total return of 7.6% per year. Over the past 5 and 10 years, I have not earned much from this stock. This international stock has suffered in this recent financial turmoil, but it is expected to start to recover in 2010 and to be fully recovered in 2011. However, predicting the future is not an exact science and who knows how our current problems will or will not work out.

The first unpleasant news is that over the past year there has been Insider Selling on this stock to the tune of 14.5M. This is about ½ of 1% of the value of this company. It would seem that this selling was of granted stock options. The problem with Insider Selling is that you do not know why the selling is taking place. There has been a very minimal amount of Insider Buying (less than .4M). The rising of the dividend by some 3.6% (in US$ terms) is a good sign. It shows that the company has confidence in the company’s future.

When I look at the 5 year average low P/E ratio I get one of 20.8 and for the 5 year average high P/E ratio, I get one of 27.2. Both these ratios are high, but this is because the company is thought of as a growth type company. I get a current P/E, based on earning estimate for 2010 of 20.7. This is just below the 5 year average low. So the current P/E is good on a relative basis. I get a current Graham Price of $31.36. This is some 22.8% below the current stock price of $38.51. This spread is lower than the 10 year average of 27% and about at the 5 year average of 21%. So here again, the price is good on a relative basis, but not an absolute basis. On an absolute basis, you want the P/E ratio to be 10 or lower and the Stock Price at or below the Graham Price. Unfortunately, growth companies only get to these levels when they become a mature company, or are in financial difficulties, (or maybe when we are in a severe bear market).

The next indicator is the Price/Book Value Ratio. I get a current ratio of 1.64 and a 10 year average of 2.09. The current one is less than 80% of the 10 year average, so this points to a good current stock price. The last thing to look at is the dividend yield. The current one is 3.11%. It has been higher over the last 2 years, but it is higher than the 5 year average of 2.82% and even the 10 year average on the low stock price, which is 2.99%. So the current dividend yield does point to a good current stock price.

When I look at analyst’s recommendations, I find lots of Strong Buy, some Buy and lots of Hold recommendations. I can also find one Underperform and one Sell. The consensus would probably is a Buy. (See my site for information on analyst ratings.) Most analysts think this is a well managed company and that it will be a great one once the effects of merger with Reuters come into effect.

It is interesting that one analyst who does not like the stock says that Thomson was always a company that was going to make a bunch of money in the future, but never seems to. This company certainly has not done well lately and for investors has basically made no money for them for the past 10 years. However, we are in a recession and many feel that the merger with Reuters will be great for this company. I guess, only time will tell. At the moment, I intend to hold what shares I have. This stock is not a large part of my portfolio and currently, I am not inclined to buy more.

What I like from a company is for it to provide a total return of 8% per year on a long term basis. I also like it to provide a dividend yield on my initial investment of 10 to 15% after 15 years. For this company the long term total return is under 8% at 7.6%. Also, the dividend yield after some 24 years is just 7.2% and this is a little low also.

Thomson Reuters Corp is the leading source of intelligent information for businesses and professionals. They combine industry expertise with innovative technology to deliver critical information to leading decision-makers. Through more than 50,000 people in over 100 countries, they deliver this must-have insight to the financial, legal, tax and accounting, healthcare and science and media markets, powered by the world’s most trusted news organization. They derive the majority of our revenues from selling electronic content and services to professionals, primarily on a subscription basis. Thomson and Reuters amalgamated in 2008. Its web site is here Thomson Reuters. See my spreadsheet at tri.htm

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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