Company Description

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 looking for.

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 price increases.

Early 2012 Development

Ohio Restaurant Association, an organization of 27,000 restaurants exclusively endorsed HPY for its comprehensive and customizable payroll capabilities.

Valuation

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

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 Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service