汤森路透

Thomson's second quarter beat FactSet consensus, and 2026 growth guidance was raised modestly, but second-quarter tax growth of 8% and third-quarter guidance for EBITDA margin of 36% were mild disappointments. Shares fell 10% on Aug 5.

Why it matters: The share price reaction looks excessive and is mainly giving back its weeklong rally before the earnings release. Overall, underlying trends look healthy. The tax segment's growth decelerated, surprisingly, from 10% in the first quarter due to timing and go-to-market execution issues. However, Thomson said this will be resolved quickly, with growth expected to accelerate in the second half. Third-quarter EBITDA margin guidance was below consensus due mainly to severance costs. A strong fourth-quarter margin (low 40s) will be needed to achieve guidance. However, Thomson is confident as $40 million in savings are expected from automation and severance actions.

The bottom line: We maintain our $146 (CAD 199) fair value estimates for narrow-moat Thomson. Shares continue to look undervalued. Our estimates are broadly in line with guidance and consensus. Thomson shares have been marked down significantly due to investor fears over AI disruption. We continue to think generative AI will be a growth enhancer for the firm. We remain confident in Thomson's moat in its core franchises of legal research/know-how and tax calculation engines. We think the key question will be potential commoditization of the AI workflow outside the core franchise use cases, which may not require the content or expertise.

Coming up: 2026 guidance is for organic revenue growth of 8% (7.5%-8.0% prior), including 9.5%-10% (9.5% prior) for the Big Three segments. EBITDA margin should rise at least 100 basis points (equal to 40.2% for the group and 44.6% for the Big Three segments) and free cash flow should be around $2.1 billion. For the third quarter, Thomson is guiding for organic revenue growth around 8% and an EBITDA margin around 36%.

For details on the threat of generative AI on these companies' legal businesses, please see our Jan. 6, 2026, report, "AI Fears Overshoot Reality; Wide Legal Moats Are Firmly Intact."

Our Thomson Reuters fair value estimate is $146 per share, implying a 2026 P/E multiple of 32 times. This multiple puts it near the top of the range of its comparable US peers and well ahead of key European competitors, RELX and Wolters Kluwer. We think a premium multiple is warranted due to higher expected revenue growth and margin upside.

In our five-year explicit forecast, we expect organic revenue growth to accelerate from around 7% to above 9%. This is driven by 9%-10% organic growth from the Big Three segments combined (legal professionals, corporates, and tax and accounting professionals), which is somewhat hindered by mid-single-digit growth in Reuters News and declining growth in global print. We expect the EBITDA margin to rise from around 38% to nearly 42%, mainly due to operating leverage from the Big Three, given Thomson’s high fixed-cost base (60%-65% of total), but also from better pricing achieved with the rollout of new gen AI products.

Thomson is benefiting from secular tailwinds that are helping to spur organic growth. Specifically, the rising complexity of regulatory compliance is driving an increased need for technology and the potential of gen AI, which is expected to transform Thomson’s customer markets, particularly the legal industry. Thomson’s leading market position and wide economic moat result in a compelling competitive position that should enable the company to capitalize on these secular trends.

We see three main factors driving Thomson’s accelerating revenue growth: product innovation, scaling previous acquisitions, and international expansion. First, product innovation will drive growth across the Big Three segments, but we believe the legal professionals segment stands out given the potential of gen AI, and this is where Thomson has focused product development so far. Westlaw Precision AI is nearing 50% penetration in its client base, and we see further upside from CoCounsel and drafting, which will see Thomson delve further into creating work products for its legal customers, rather than mainly being a reference source.

Second, Thomson has spent several billion dollars on fast-growing bolt-on acquisitions in recent years while simultaneously divesting noncore low-growth assets. This portfolio optimization has resulted in products growing by double digits, accounting for 25% of total revenue in 2024 compared with only 11% in 2019. As these acquisitions are in the early stages of their lifecycle, we expect high-growth rates to continue for several years. Indeed, Thomson is expecting these acquisitions to grow at nearly a 30% CAGR over the next few years.

Finally, international markets are much less penetrated than the US and have higher potential market growth. Thomson’s international business accounts for around 15% of total revenue, but has been growing at an 11% CAGR, and the market is expected to continue growing 8%-12%. We think Thomson can continue growing at a double-digit rate, led by the ongoing success of Dominio, its market-leading tax business in Brazil, and a renewed focus on corporates.

We think Thomson Reuters has a narrow moat based on intangible assets and switching costs. Adjusted ROIC has historically been below the cost of capital, but a 15-year transformation has produced a more streamlined, higher-quality mix. We expect ROIC to reach the midteens by the end of our forecast.

The 2008 merger of Thomson and Reuters created a diversified holding company with $13 billion in revenue across finance, legal, tax, accounting, science, healthcare, and media. After years of restructuring, Thomson Reuters is now about half its former size, focused on legal and tax products (82% of revenue, including print) and a small risk business (8%). Only the news business remains from Reuters, about 10%.

Thomson holds the top spot in the global legal market and second in tax and accounting (first in the US and Latin America), and leads in corporate legal and tax solutions. The legal market is fairly concentrated, especially in the US. Tax and accounting stays competitive even though the top three players hold about 45% of it, and the corporate market is the most fragmented.

Thomson has three core segments: legal professionals, tax and accounting professionals, and corporates; together, the Big Three generate over 80% of revenue. All three carry wide moats from intangible assets and switching costs. Reuters News and global print are the remaining segments, which we view as immaterial to the moat analysis.

Moat sources are similar across the Big Three segments. Intangible assets come from uniquely curated, proprietary databases built over decades, giving Thomson a reputation as the foremost authority in its fields. It would take enormous time and cost for a rival to replicate these databases.

Switching costs stem from mission-critical products embedded in customer workflows, where failure in legal and tax matters is costly. Customers rarely leave a trusted provider, and daily use builds inertia through familiarity and training time invested. Migration also risks losing data, and low product cost gives little incentive to switch. RELX notes its products cost less than 1% of a customer's cost base. Thomson's gross retention sits in the low 90s, which fits with a narrow moat rating. RELX and Wolters retention rates are around the mid 90s. We expect Thomson's retention to improve as management now prioritizes it, offset by stable end markets.

Unlike RELX and Wolters Kluwer, we don't see a clear cost advantage at Thomson currently, though its distribution scale helps. RELX and Wolters hold an edge in research and development, since heavy product investment, recorded as capital expenditure, spreads across similar businesses with technology often transferable across segments. Thomson hasn't yet optimized R&D given its transformation, shown by capex of 8% of revenue versus 4% to 6% for peers.

Westlaw anchors the legal segment's moat as Thomson's largest product, generating about 25% of company revenue and roughly half of legal segment revenue. It is the leading US product for finding precedents, analyzing case law, and interpreting statutes and regulations. Westlaw's data spans over 150 years, much of it unavailable through the court system, and 1,600 attorney editors summarize, index, and link case citations to Thomson's taxonomy, creating a proprietary dataset we view as an intangible asset. As a mission-critical, industry-standard product, it carries high switching costs. The US legal research market is a duopoly between Westlaw and RELX's LexisNexis, with Westlaw about 50% larger and priced at a premium.

Practical Law is another notable legal segment product, a fully proprietary database and workflow tool built by Thomson's subject matter experts. It supports transactional work like employment, commercial, and immigration law, giving lawyers explanations outside their expertise, templates, step-by-step guides, and contract drafting help. New entrants would find this product very difficult to replicate.

Most TAP revenue comes from tax preparation software, led by the US-focused UltraTax CS at about half of segment revenue, and Dominio, Brazil's market leader with a 43% share, at around 10% of segment revenue. These mission-critical products carry high switching costs since accountants build daily workflows around them, and switching means migration costs, retraining, and integration challenges. TAP also holds intangible assets in Checkpoint, Thomson's tax, audit, and accounting research tool and the TAP equivalent of Westlaw.

The corporate segment shares the same moat sources as legal and TAP through similar products, though margins run lower. We attribute this to higher sales and support costs from larger, more complex, bundled deals; greater price sensitivity among corporate customers, who treat these products as a cost center rather than a driver of billable hours; and a more fragmented market where Thomson is less dominant, ranking only third or fourth in indirect tax. Even so, returns justify the same moat sources.

The remaining segments are Reuters News and global print. We don't think Reuters News has a moat. Despite brand recognition, the news and editorial space is largely commoditized, and Reuters hasn't monetized that brand enough to count as an intangible asset. The segment is also constrained by its long-term contract with the London Stock Exchange Group, generating about half of segment revenue; it provides stability but limits Reuters' ability to earn excess profits. A 2021 plan for a $34.99 monthly professional subscription was disputed by Refinitiv as breaching their exclusivity agreement, a dispute lasting until 2024, when the service launched as a mass-market offering at $4 per month.

Global print, while moatworthy, is declining as customers shift to electronic delivery, and the business could disappear within 10 to 20 years. Margins remain high, and it generates substantial free cash flow given minimal investment needs, so we don't expect it to affect the overall company moat.

Thomson is ideally positioned to reap the benefits of gen AI-driven product innovation, which is expected to transform the legal and tax industries.

Thomson’s underleveraged balance sheet should enable it to pursue more growth-enhancing acquisitions in the coming years.

Thomson is a dividend aristocrat with a multidecade track record of raising its dividend.

Market expectations are high, as evidenced by its relatively high trading multiples compared with peers. Consequently, a small misstep could lead to an outsize correction in the stock price.

Competitive intensity has increased as gen AI has created more opportunities for new entrants.

We expect Thomson to continue aggressively pursuing acquisitions, which increases risks around overpayment and integration.