Thomson Reuters stock is a pass, RBC says

Its third quarter was better than he expected, but RBC analyst Drew McReynolds says now is not the time to be buying Thomson Reuters stock (Thomson Reuters Stock Quote, Chart, News, Analysts, Financials NYSE:TRI)

On November 1, TRI reported its Q3, 2023 results. The company posted Adjusted EBITDA of $632-million on revenue of $1.6-billion, a topline that slightly bested the same period last year.

“Solid momentum across our business continued in the third quarter, despite an uncertain macro environment,” said CEO Steve Hasker. “Importantly, our confidence around the generative AI [artificial intelligence] opportunity continues to strengthen. We made good progress against our build/partner/buy approach in the quarter, advancing our product roadmaps, pursuing strategic partnerships and completing our acquisition of Casetext. Customers view this progress as a clear sign of our intent and ability to lead in generative AI, and we are excited to continue unlocking its full potential for their benefit.”

As reported by the Globe and Mail, McReynolds says the risk/reward on TRI is looking better of late, but not enough for him to recommend the stock.

“We believe the recent pullback in the stock has lowered the degree of valuation risk that prevailed following the run-up in the shares into Q2/23 (forward twelve month EV/EBITDA of 20.6x versus a peak of 24.5x). Nevertheless, we remain patient for a more timely entry point with a three-fold focus on: (i) the ability to generate organic revenue growth in excess of plus 6 per cent on a sustained basis; (ii) improved visibility on the impact of accelerated AI adoption and monetization; and (iii) the extent to which macro uncertainty ultimately translates to a slower net sales environment.”

In a research update to clients, the analyst maintained his “Sector Perform” rating and trimmed his one-year price target on the stock from (US) $136 to $133. TRI on the NYSE closed November 2 at $126.92.