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Bear of the Day: Blackhawk Network (HAWK)

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Distribution channels are key to many companies and when those lines are severed or blocked for any reason it always negatively impacts the company’s bottom line.  This is the case for our Zacks Bear of the Day, Blackhawk Network Solutions .  While several of the channels have been reopened, and a few are in the process of meeting compliance issues, getting back to where they were before the issues arose will take a bit of time.    

This Zacks Rank #5 (Strong Sell) company is a provider of prepaid and financial payments products for consumers and businesses. The company distributes gift cards, prepaid handsets and prepaid financial services products. Blackhawk Network Holdings, Inc. is headquartered in Pleasanton, California.

Recent Earnings Data

Blackhawk reported Q3 16 earnings data on October 11th, and they saw year over year losses in the following areas; Net Income -42%, Diluted EPS -29%, Adjusted operating revenues -5%, Adjusted EBITDA -7%, Adjusted net income -20%, Adjusted diluted EPS -18%.  

Management’s Take

According to Jerry Ulrich, CFO, “GAAP net loss increased 41% in the third quarter of 2016 primarily due to the EMV impact on revenues along with increased acquisition related expenses, including interest expense on increased borrowings.  Adjusted EBITDA declined 7% for total Blackhawk.  For the U.S. retail segment, operating profit and adjusted EBITDA declined 18% and 17%, respectively, during the third quarter of 2016 reflecting the impact of EMV.  The shortfall in Cardpool revenues had minimal impact on net loss and adjusted EBITDA.  Segment operating profit and adjusted EBITDA growth in the international segment was 28% and 33%, respectively, and 99% and 53%, respectively, in the incentives segment.  Growth in adjusted corporate and unallocated expenses was limited to 5% during the third quarter.”

Price and Consensus Graph

As you can see in the graph below, the company’s future earnings estimates have dropped significantly after their last earnings report.

BLACKHAWK NETWK Price and Consensus

BLACKHAWK NETWK Price and Consensus | BLACKHAWK NETWK Quote

Declining Earnings Estimates

Earnings estimates for Q4 16, Q1 17, FY 16 and FY 17 have all declined over the past thirty days; Q4 16 dropped from $1.29 to $0.99, Q1 17 fell from $0.35 to $0.13, FY 16 plunged from $2.14 to $1.16, and FY 17 plummeted from $2.42 to $1.42.

Bottom Line

While management confirmed that 21 out of their 25 accounts are now EMV (Europay, MasterCard, and Visa) compliant, 1 account is nearing compliance, and 3 accounts should be compliant in 2017 adjusted operating revenue (AOR) still has a bit of a bumpy road ahead.  And this bumpy road is why their earnings estimates have declined.  Therefore, it would be best to stay on the sidelines till this issue is fully repaired and that the previous restrictions are eased.

If you are inclined to invest in the Financial Miscellaneous Services segment, you would be best served by looking into Euronet Worldwide (EEFT - Free Report) , and or Moodys Corp (MCO - Free Report) , both of which currently carry a Zacks Rank #2 (Buy).

More Stocks to Sell. Now.

Beyond our Bear Stock of the Day, today's list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500. 

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