What Is Nielsen Holdings’ Fundamental Value?

Nielsen Holdings’ (NASDAQ: NLSN) continues to see steady growth, primarily led by its Watch segment. However, the company’s Buy segment has been facing headwinds with mid single digit declines in developed markets while business in emerging markets continues to grow in the high single digits. In 2017, the company’s revenues increased 4% year-over-year (y-o-y) to $6.6 billion, largely driven by growth in the Watch segment. We expect this trend to continue in the near term, and the Watch segment should continue to outperform the Buy segment.

We have a $37 price estimate for Nielsen Holdings, which is about 15% ahead of the current market price. Our interactive dashboard details our forecasts and estimates, which we outline below.

Lower Tax Rate To Aid Earnings Growth

Our $37 price estimate for Nielsen Holdings is based on $1.55 expected EPS in 2018 and a price/earnings multiple of 24. Nielsen has a very strong foothold across markets, and maintains its leadership position in market research. Its positioning should help its business grow steadily in the near term, and beyond. We expect modest growth in net margins, led by a lower effective tax rate, which should aid earnings growth in 2018. It should be noted that the company’s effective tax rate was 13% higher in 2017, due to the impact of the TCJ Act. Our revenue forecast of $6.8 billion represents year-on-year growth of around 4%. Of the total expected revenues in 2018, we estimate $3.7 billion to come from the Watch segment. Below we discuss our revenue estimates in detail.

Watch Segment Will Likely See Double Digit Growth

Nielsen’s revenues are primarily driven by four factors – 1) Monthly Purchasing Data Points, 2) Average Revenue Per Purchasing Data Point, 3) Monthly Tuning & Viewing Records, and 4) Average Revenue Per Tuning & Viewing Record. The company has been able to maintain its volume in both the Buy and Watch segments. Volumes for the Buy segment have remained at 9.5 billion data points monthly, while for the Watch segment it has been around 200 billion records monthly. We don’t expect any significant changes in volumes in the near term. However, on the pricing side, the average revenue per purchasing data point for the Buy segment declined marginally in 2017. We expect this to continue in the near term, as the company faces headwinds in developed markets.

The Watch segment has seen strong growth of late, with a 12% jump in average revenue per tuning and viewing record in 2017. We expect this trend to continue in 2018, as the company continues to benefit from the Gracenote acquisition. Also within the Watch segment, the company is seeing growing demand for audience measurement of video and text, which will continue to aid overall segment growth. Accordingly, we estimate 10% growth in revenues to $3.7 billion.

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