Heartland Payment Systems sees
earnings surprises translate into price appreciation. With
estimates moving higher, this stock is a Zacks #1 Rank
Heartland Payment Systems, Inc. provides bankcard payment
processing services. It facilitates the exchange of
information and funds between merchants and cardholders'
financial institutions and offers electronic payment
processing services to merchants.
Earnings Surprises Lead to Price Moves
The last three quarters for HPY have been good ones. The
company has reported earnings that have topped the Zacks
Consensus Estimate in each of the last three quarters.
Beats of $0.06, $0.04 and $0.02 are growing smaller in
absolute and percentage terms, but the two cent beat was
still clocked in nearly 7% ahead of expectations. The six
and four cent beats were 42% and 14% above expectations.
Earnings surprises have resulted in just what investors
wanted, price appreciation. In the March 2011 quarter, the
biggest of the three beats resulted in a 15% gain for the
stock. The two other reports help tack on 8% each. All
three moves are just what aggressive growth investors are
Estimates Moving Higher
Analysts have been seeing more profits for HPY in 2012 over
the last several months and have moved up their estimates
accordingly. In April of 2011, the Zacks Consensus Estimate
was $1.10. Currently, the expectation for 2012 sits at
$1.31. Similarly, 2013 estimates have moved from $1.18 in
April 2011 to $1.53 today.
Pricing and cost cutting should drive 2012 results
Analysts are pointing to pricing power as a main driver for
the company in 2012. Another driver is the Durbin Amendment
swipe fee reform that was enacted in October. The Durbin
Amendment caps the swipe fees credit card companies charge
merchants. In 2010, swipe fees accounted for $20 billion in
fees, and it appears that at least half of that will no
longer be paid. That is a lot of room for HPY to install
Early 2012 Development
Ohio Restaurant Association, an organization of 27,000
restaurants exclusively endorsed HPY for its comprehensive
and customizable payroll capabilities.
HPY trades at a premium to the industry average on nearly
every metric, denoting its position as a top player in the
payment processing industry. The lone exception to that is the
price to sales multiple of 0.5x for HPY versus the 2x
multiple for the industry. This discount is much more
significant than the premiums exhibited in other metrics.
The chart for HPY shows some good "bottom left to top right"
direction with some acceptable volatility. Coming off
recent highs, HPY looks even more attractive for aggressive
growth investors that are looking to add a Zacks #1 Rank
(Strong Buy) stock.
Brian Bolan is the Aggressive Growth Stock Strategist for
is also the Editor in charge of the Zacks
Run Investor service