AI fears have hit this data stock. Investor Sarat Sethi sees a buying opportunity
I like finding companies where there’s a disconnect between what the market is worried about and how strong the business actually is. That’s what I see in Verisk Analytics . I’ve owned a starter position for a while but have become more aggressive as the stock has sold off. The Jersey City-based company’s roots go back to 1971, when a group of U.S. property and casualty insurers came together to collect industry data and report it to regulators. Today, Verisk is a leading provider of data analytics and software to the insurance industry. Its business centers on underwriting and claims, helping insurers price policies, assess risk, estimate property damage and spot fraud. Key Points Verisk’s proprietary data and software are difficult for competitors to replicate. More than 80% of revenue is recurring and EBITDA margins exceed 50%. A recent slowdown has pushed the stock to a steep discount, but I expect growth to rebound. Beginning in 2022, Verisk shed its non-insurance businesses and named Lee Shavel CEO, emerging as the “new” Verisk: a simpler company focused on insurance. I like the direction Shavel has taken the company. He brings a strong finance and strategy background to the role, having previously served as Verisk’s CFO and, before that, as CFO and executive vice president at Nasdaq. More recently, growth has slowed and investors have worried that AI could disrupt Verisk. But those concerns underestimate how valuable its data and products are to insurers. Why I’m buying Verisk has a powerful data advantage Verisk has built something that would be extremely difficult to build from scratch today: decades of detailed insurance data. Its customers include the top 100 U.S. property and casualty insurers and 18 of the top 25 global reinsurers. The company’s products are key to how insurers operate, yet Verisk generated about $3.1 billion in revenue last year, equal to roughly 0.3% of U.S. insurance premiums. That’s a powerful position to be in: Insurers rely on Verisk, yet its revenue is tiny relative to the premiums they collect. It’s a stock I can own and compound over time More than 80% of Verisk’s revenue comes from recurring subscriptions, and its client retention rate is above 95%. It’s also a very profitable business. Verisk has EBITDA margins above 50%, thanks to a scalable business model: Once the company has built its data sets and software, it can serve more customers without its costs rising nearly as much. The market is underestimating Verisk’s resilience Verisk’s insurance business has historically grown revenue around 8% annually, but growth slowed to roughly 5% to 6% over the past year. VRSK YTD mountain Verisk Analytics, YTD Investors also worry insurers could eventually use AI and synthetic data to build more of their own tools. That risk is real. But more than 90% of Verisk’s revenue comes from unique data and proprietary intellectual property, and the company is developing its own AI tools for customers. I think a lot of the recent slowdown is temporary. Severe weather events have been unusually low (I don’t expect that to last forever), while the government contract and auto claims issues are relatively small. The contract work, for example, accounts for less than 1% of revenue. Why now? Verisk has been hit hard, with the stock down about 21% this year and 34% over the past 12 months. That sell-off has made the valuation much more attractive. From 2022 through mid-2025, the “new” Verisk generally traded at 20 to 25 times forward enterprise value to EBITDA. Today, it trades at roughly 15 times. If growth accelerates again as I expect, I believe Verisk can eventually return to around 25 times forward free cash flow, up from roughly 20 times today. So I’m getting a business I want to own at a steep discount to where the “new” Verisk has historically traded. Bottom line Verisk is a strong business going through a temporary slowdown. AI remains the biggest risk, along with the possibility that management loses its focus on insurance. But the company has a unique data advantage, and I think it’s more bulletproof than people think. Disclosures: Sethi owns personally and in Douglas C. Lane & Associates. All opinions expressed by the [CNBC Pro contributors] are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. 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