Strong core business growth; near-term margin pressure does not alter the AI monetization thesis

Overview

Thomson Reuters' second-quarter operating performance was solid overall, with revenue, EBITDA and EPS all exceeding Goldman Sachs' expectations; full-year revenue guidance was raised, while margin guidance was maintained. Growth in Legal and Corporates accelerated, and AI product adoption improved, driving upgrades and add-on purchases. The main negatives came from marketing execution missteps in Tax, Audit & Accounting, as well as pressure on near-term margins from severance costs and continued AI investment.

Core views

Goldman Sachs believes that high-single-digit to double-digit organic growth across the three core businesses demonstrates the company's ability to maintain or increase market share in an increasingly competitive AI environment. Authoritative proprietary content, professional workflow capabilities and the company's proprietary legal large language model, Thomson, form CoCounsel's differentiated advantages. Weakness in Tax, Audit & Accounting mainly stems from internal execution rather than competition or customer budget pressure, and is expected to reaccelerate in the second half. Near-term margin volatility may weigh on market sentiment, but strong core growth and AI monetization still support valuation upside.

Analysis framework

The report compares second-quarter actual results with Goldman Sachs forecasts and FactSet consensus expectations, breaks down growth drivers by segments such as Legal, Corporates and Tax, Audit & Accounting Professionals, and adjusts 2026 to 2028 financial forecasts based on full-year guidance, quarterly margin cadence and AI product adoption. The target price uses rolled-forward next twelve months plus one-year EPS and applies a 22.0x P/E multiple.

Methodology notes

• Fundamental analysisEarnings variance analysis

  Compare actual results, institutional forecasts and market consensus expectations

  Assess quarterly earnings quality and the direction of expectation revisions through variances in revenue, organic growth, EBITDA margin and EPS.

• Business analysisSegment growth and driver breakdown

  Identify sources of growth, sustainability and execution risks by business segment

  Focuses on analyzing organic growth, product adoption, transaction revenue and customer trends in Legal, Corporates and Tax, Audit & Accounting Professionals.

• Valuation analysisForward P/E valuation

  Target multiple multiplied by rolled-forward forward EPS

  The TRI.US target price is based on 22.0x rolled-forward next twelve months plus one-year EPS of $5.45; this multiple is above the information services industry median forward P/E of 18.1x, reflecting growth resilience, competitive moats and execution track record.

• Factor analysisGoldman Sachs factor profile

  Standardized ranking combining growth, financial returns and valuation multiples

  The Goldman Sachs factor profile calculates percentiles using forecast sales, EBITDA, EPS, shareholder returns and valuation metrics, and forms a composite score; the current materials do not provide TRI's specific percentile results.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TRI.US

  The U.S.-listed stock primarily covered by the report; Buy rating maintained and target price raised.

  Strengths

  Strong growth across the three core businesses, with Legal and Corporates achieving double-digit organic growth; proprietary content, professional workflows and the Thomson large language model support AI product differentiation and pricing power.

  Weaknesses

  Marketing execution missteps in Tax, Audit & Accounting Professionals weighed on growth, while recent severance expenses and AI investment pressured margins.

  Comparison

  The 22.0x target P/E is above the information services industry median forward P/E of 18.1x, with the premium justified by growth resilience, a broad competitive moat and a strong execution track record.

  Risks

  Intensifying competition from AI-native players, customer adoption below expectations, macroeconomic pressure on budgets, excessive investment spending leading to weaker-than-expected margins, and foreign exchange volatility.

• TRI.TO

  The same company's Canada-listed stock, with the target price translated based on the TRI.US target price and the USD/CAD exchange rate.

  Strengths

  Shares the same core business growth, AI commercialization and capital allocation thesis as TRI.US.

  Weaknesses

  In addition to company fundamental risks, the Canadian dollar-denominated target price is also affected by changes in the USD/CAD exchange rate.

  Comparison

  The 12-month target price was raised from C$159 to C$166, versus a current price of C$137.49, implying 20.7% potential upside.

  Risks

  Company operating risks, valuation derating risk and USD/CAD exchange rate volatility.

Key data

• Second-quarter revenue$1,954mnUp 9.5% year over year, above Goldman Sachs' forecast of 7.3% and FactSet consensus expectations of 7.5%.
• Second-quarter organic revenue growth8%Above Goldman Sachs' forecast of 7.5% and in line with the first-quarter growth rate.
• Organic growth across the three core businesses10%Above Goldman Sachs' forecast of 9.0% and accelerated from 9% in the first quarter.
• Second-quarter EBITDA margin38.1%Expanded 30 basis points year over year, slightly above Goldman Sachs' forecast of 38.0%.
• Second-quarter EPS$0.99Above Goldman Sachs' forecast of $0.92 and consensus expectations of $0.96.
• 2026 revenue guidanceAbout 8% on a reported basis; about 8% on an organic basisOrganic growth guidance for the three core businesses was raised from about 9.5% to 9.5% to 10.0%.
• 2026 margin and free cash flow guidanceEBITDA margin above 40.2%; free cash flow of about $2.1bnThe company maintained its target of expanding full-year EBITDA margin by more than 100 basis points.
• Third-quarter outlookOrganic revenue growth of about 8%; EBITDA margin of about 36%Severance expenses and AI investment are expected to reduce margins by 150 to 200 basis points year over year.
• 2026 to 2028 revenue forecasts$8,133mn, $8,839mn, $9,639mnRaised by about 0.3% on average versus previous forecasts, as strong performance in Legal and Corporates partially offsets the downgrade to Tax, Audit & Accounting.
• 2026 to 2028 EPS forecasts$4.43, $5.07, $5.82Previous forecasts were $4.37, $5.05 and $5.78, respectively.
• Global Print transactionSale of a 51% stake to KKR, with transaction value of about $500mnThe transaction is expected to modestly enhance organic growth and increase focus on higher-growth AI and software businesses.
• Capital allocationCompleted $600mn of repurchases; still has $9bn of capital capacity through 2028The repurchase reduced the share count by about 3%, and remaining capacity can be used for shareholder returns and M&A.

Impact & implications

The earnings beat and raised revenue guidance are supportive of stabilizing medium- to long-term earnings expectations, while double-digit growth in Legal and Corporates and the incremental nature of AI spending reinforce the competitive advantages of the company's content and workflow platform. A decline in third-quarter margins, normalization of government Legal growth and execution issues in Tax may cause near-term share price volatility, but if Tax recovers in the second half, AI add-on purchases continue and fourth-quarter margins rebound, the valuation premium should remain supported. The divestiture of the print business further improves the business mix and provides capital flexibility for repurchases, M&A and product investment.

Risks

• Intensifying competition from AI-native companies may weaken market share or pricing power.
• Macroeconomic pressure may compress technology budgets for legal, corporate and tax customers.
• The pace of customer adoption of AI products may be lower than expected.
• Excessive investment in AI, product development and commercialization may cause EBITDA margins to fall short of expectations.
• Marketing execution issues in Tax, Audit & Accounting Professionals may persist, causing growth recovery to occur later than expected.
• Strong transaction revenue in the government Legal business in the second quarter may not be sustainable, and third-quarter Legal growth may fall back to about 9%.
• Foreign exchange volatility may affect reported revenue, earnings and the target price for the Canada-listed stock.

What to watch

• Whether Tax, Audit & Accounting Professionals can reaccelerate in the second half and return to normal growth levels by year-end.
• Whether third-quarter EBITDA margin remains at about 36% and whether the fourth quarter improves as scheduled.
• Upgrade, add-on purchase and retention trends for Westlaw Advantage and CoCounsel across law firms of different sizes.
• Whether AI product spending continues to appear as incremental demand rather than substitution for traditional content and workflow subscriptions.
• After government Legal growth normalizes, whether 11% growth from commercial customers can support overall Legal performance.
• Completion progress of the Global Print sale, its growth-accretive effect and use of proceeds.
• Allocation of the remaining $9bn capital capacity among repurchases, M&A and internal AI investment.
• Whether 2026 organic growth across the three core businesses can reach the raised guidance of 9.5% to 10.0%.