Heartland Payment Systems

by Zacks Equity Research

November 16, 2012 |

Heartland Payment Systems Inc. (HPY) has topped the Zacks Consensus Estimate for the past four quarters with an average surprise of 20.7%. In its most recent report, this Zacks #1 Rank (Strong Buy) provider of debit, credit and payroll cards raised its outlook for the full year, leading to positive estimate revisions for 2012 and 2013. Moreover, HPY has a long-term expected earnings growth rate of 15%.

Solid Q3 Performance

On November 1, Heartland Payment Systems reported operating net earnings per share of 48 cents, exceeding the Zacks Consensus Estimate by 14.3% and last year’s earnings by 54.8%. Consequently, operating net income surged 65.5% year over year to $19.7 million.

Gross revenue climbed 0.4% year over year to $534.2 million, driven by same store sales growth of 1.8% and volume attrition of 12.9%. After deducting cost of services, which dipped 3.3% year over year to $642.4 million, net revenue surged 17.3% to $143.4 million.

However, general and administrative expenses jumped 18.3% to $38.1 million. Subsequently, operating income increased 55.6% year over year to $33.6 million. Additionally, operating margin on net revenue substantially improved to 23.5% from 17.7%.

With a lower debt compared to the end of 2011, operating cash flow spiked 30.7% year over year to $98.7 million during the reported quarter. The company also authorized a $50 million share buyback program in July 2012, which was completed October 2012.

Hiked Guidance Raises Optimism

Concurrent with its earnings release, Heartland Payment lifted its revenue projection for 2012 to between $544 million and $546 million, against the earlier expectation of $540 million to $545 million.

Operating net earnings per share are now anticipated between $1.81 and $1.84, compared to the prior expectation of $1.70–1.74.

Share Repurchase

Last week, the board of Heartland Payment sanctioned a new share buyback program worth $50 million, after repurchasing stock worth $100 million in the last 12 months through October 2012. This also reflects the company’s sturdy operating cash flow and earnings per share accretion on low share count.

Earnings Momentum on Elevated Track

Over the past 30 days, the Zacks Consensus Estimate for 2012 rose 3.2% to $1.63 per share, implying year-over-year growth of 46.9%. Out of 14 total estimates, nine were revised higher.

For 2013, the Zacks Consensus Estimate stands at $1.93 a share, up 4.9% over the last 30 days and representing year-over-year increase of 18.5%. This period has seen 14 of 15 estimates move higher.

Chart Shows Consistency

Heartland Payment has been moving higher for the last 6 months, reaching a 52-week high of $32.80 on October 2. The stock has also outperformed the S&P 500 index year-to-date. Volume is fairly strong, averaging 536.43K daily.

Currently, the stock price is trading in the range of $26.00–$32.00, which is also in the neighborhood of its 200-day moving average of $29.67 and the 50-day moving average of $28.04.

Headquartered in Princeton, New Jersey and incorporated in 2000, Heartland Payment Systems is the sixth largest bankcard payment processor that offers debit, credit and prepaid card services across the U.S. and Canada. The company also provides loyalty marketing, technical business solutions and services to more than 250,000 organizations, thereby enhancing data security. With a market capitalization of about $1.0 billion, it competes with Global Payments Inc. (GPN) and Fidelity National Information Services Inc. (FIS), among others.

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