February 25, 2024


Technology and Age

Advanced Drainage, Jack Henry Associates, Visa, Mastercard and Global Payments as Zacks Bull and Bear of the Day

For Immediate Release             

Here is a synopsis of all five stocks:

This building products name is very strong here, one of the names that continues to pop up on the list of new 52-week highs. This is what I have been talking about in the newsletter services I run — sticking with the winners.

The earnings history isn’t that good here. But we don’t buy stocks based on the earnings history. This stock has missed 3 of the last 4 quarters, but the most recent report was a beat of the Zacks Consensus Estimate.

The most recent report was the lone beat and it was a big one. The company reported $0.83 in EPS when $0.65 was expected. That 18-cent beat translates into a positive earnings surprise of 27%.

We see a slew of positive earnings estimate revisions.

This quarter has moved from 78 cents to 97 cents over the last 30 days.

Next quarter has more than tripled, moving from 11 cents to 37 cents.

The full year numbers has jumped from $1.53 to $2.43

Next year is looking good too, moving from $1.43 to $2.34.

We would expect next year to show some earnings growth after the next report as there will be better visibility.

So there is an issue here, we see the forward PE at 23x which is not terrible. The 6.6x book multiple is the issue. That is a lot even for a name like this that is growing at 23% on the topline. The 2.2x sales is a good spot to be at and margins are headed in the right direction.

Operating margins went from 3.45% to 5.7% and that is just what we like to see. Net margins have moved from -11% to 5.71% again, just what we like to see.

Bear of the Day:

The stock was having a great year, making all-time highs above $200, before its recent earnings report. Now investors must decide if the selling was overdone or if there is a bigger issue at hand.  

Jack Henry had been marching higher all year after hitting pandemic lows around the $125 area. The stock was trading around $160 back in May when a big eps beat took the stock to $180. After a few months of trading sideways, it broke above $200 and then hit the wall after this quarter’s earnings report.

The headline beat on EPS didn’t tell the whole story as the company missed on revenues. While June was the strongest sales month in the company’s history, they see headwinds regarding revenue for the first half of 2021. Year over year revenue growth slowed from 12% to 4% and payments fell to 3% from 11%.  

The stock reacted violently, moving from $200 to $180. Since the initial fall, the selling hasn’t stopped and the stock is now 16% off the highs.

Analysts dropped estimates across all time frames after the recent earnings report.  For the current year, estimates have ticked lower by 5% over the last week, going from $3.96 to $3.76. For next year, estimates have fallen 7.3%.

The stock was churning around the $180 level before breaking higher. After earnings, that prior support was tested and failed, which helped the stock fall another leg lower. The bulls are supporting the 200-day at $165, but if that were to fail and break the recent lows, look for the $150 level to come into play. This is the 61.8% retracement from the March lows to recent highs.

It’s tempting to buy this stock after the recent drop. The 200-MA is being defended and it’s down almost 20% from highs. However, if we see some market weakness, that level could easily break and the traders trying to play the bounce will likely be new sellers. Be patient with this one as the fundamental issues will last into next year.

One pertinent change brought about by the coronavirus is the tremendous use of technology with varying degrees across different industries.

The payments industry in particular was already undergoing a massive shift to the digital from its physical mode. Evidently, it saw an accelerated use of technology by customers and businesses.

A marked development was witnessed on the adoption of digital payment methods by small businesses which in the pre-COVID-19 era, had relied on age-old payment methods via physical or bank channels, which were mostly and full of hassles.

Per a Mastercard study of small business owners across North America, 76% respondents confirm that the pandemic prompted them to go online with 82% businesses changing the ways of sending and receiving payments. Citing difficulty with cash flow and payment collection, 50% added a new digital service for collecting funds while one in four transitioned to e-invoicing. With 68% complaining that the use of cash and check deposits are time consuming, small business entrepreneurs saved the long hours by resorting to cashless options more frequently during the pandemic.

Online card payments saw the maximum surge at 60% while the use of cash (34%) and checks (24%) decreased more than any other payment type amid the COVID-19 crisis.

Given the financial and operational stress due to the sluggish business activities caused by the coronavirus outbreak, small businesses are suffering fund crunch associated with late payments and slow processing for cash and checks. At a time when solid liquidity is the need of the hour, a single payment delay is enough to topple the operations of small businesses. This glitch prompted many small-time players to turn to digital services for expediting their payment mechanism.

A Mastercard survey highlighted that owing to better speed, security and transparency, more than half (57%) of small business players are increasingly opting for digital services regarding business-to-business (B2B) payments since the onset of the pandemic. Also, nearly two-thirds (64%) of small businesses are actively trying to dissuade  clients from using cash and checks.

The trend of digital payments is here to stay even after the ongoing pandemic subsides. This can be gauged from the favorable sentiment building around the digital platforms and with growing customer satisfaction. 70% of small business firms are willing to invest in the technology required to advance their payment systems while 73% proprietors consider digital channels to be the new normal for their businesses going forward.

Global B2B payments market value was $125 trillion in 2019. According to ResearchAndMarkets.com, the global digital B2B payments market observed stable growth in the past few years and the market is further expected to rise at a staggering rate during the 2020-2024 forecast period.

Growth in the global digital B2B payments market will be bolstered by a host of drivers like expanding real-time payments, increasing adoption of cloud-based solutions, escalating smartphone penetration, emerging B2B e-commerce industry, swelling business process automation, rising urbanization, growing cross-border payments, etc.

The stock’s bottom line surpassed estimates in three of the trailing four quarters (meeting the consensus mark in one), the average beat being 2.42%.

Earnings of the stock surpassed estimates in each of the last four quarters, the average being 9.11%.

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.

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Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
Mastercard Incorporated (MA) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
Jack Henry Associates, Inc. (JKHY) : Free Stock Analysis Report
Global Payments Inc. (GPN) : Free Stock Analysis Report
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Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
Mastercard Incorporated (MA) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
Jack Henry Associates, Inc. (JKHY) : Free Stock Analysis Report
Global Payments Inc. (GPN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research