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SS&C Technologies Holdings

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Earnings estimates for SS&C Technologies Holdings, Inc. (SSNC - Free Report) have been trending higher since the provider of software products and allied services reported solid first quarter results on May 7, which included year-over-year growth of 31.8%.Supported by a couple of accretive acquisitions, this Zacks #1 Rank (Strong Buy) should see continued growth in fiscal 2012 and beyond.

1Q Earnings Above the Zacks Consensus

SS&C reported first quarter earnings per share (EPS) of 29 cents, beating the Zacks Consensus Estimate by 16.0%. Revenues grew 5.2% year over year to $93.7 million, driven by strong growth in the Software-enabled services segment. Management noted that its fund administration business had done very well during the quarter and believes that there is still more upside potential.

The company generates recurring revenue from maintenance and software enabled services. The recurring revenue measured on an Annual Run Rate Basis (ARRB) grew 8.9% year over year to $84.1 million. The increase based on ARRB is indicative of steady revenue growth.

2Q & Fiscal 2012 Guidance Raised

SS&C provided encouraging second quarter and fiscal 2012 guidance, which was later raised to reflect the immediate synergies from two consecutive acquisitions (Thomson Reuters' PORTIA Business and GlobeOp Financial Services S.A.).

SS&C now expects revenue for the quarter between $120.0 million and $122.5 million (up from the earlier guidance of $95.5 million to $97.5 million). Adjusted net income is expected between $25.9 million and $26.7 million (up from $24 million to $24.8 million), while EPS is at 31 cents to 32 cents (up from 29 cents - 30 cents).

For fiscal 2012, revenue is expected between $558.5 million and $571.0 million, up from $392.0 million to $400.0 million. The adjusted net income guidance was raised to between $113 million and $118 million from $99.0 million to $103.5 million, while EPS was raised to between $1.35 and $1.39 from $1.19 to $1.22.

Estimates Also Jump in Response

Over the last 90 days, the Zacks Consensus Estimates for 2012 and 2013 have gone up by 14 cents and 25 cents, respectively, to $1.22 and $1.42. The estimate for fiscal 2012 represents an upside of 32.6% from 92 cents in fiscal 2011, while the estimate for fiscal 2013 represents a year-over-year growth of 16.4%.

The estimate revision reflects analysts’ confidence as well as better visibility for fiscal 2012.

Valuation Looks Reasonable

Considering the company’s growth prospects, its valuation looks reasonable on a P/E basis. SS&C is currently trading at a P/E of 24.4X, up 73.0% from the peer group average of 14.1X. Besides P/E, the stock is trading at a forward P/B of 1.88 and a P/S of 5.06, compared with the peer group’s P/B of 1.63 and P/S of 2.45.

Chart Represents Growth Potential

The chart clearly shows that while share prices have been volatile over the past few years, EPS has more or less been steadily growing. However, the current momentum appears to be driven by prospects of acquisition synergies, with price increases supported by estimate growth trends.

Prices went up steeply in July when management revised guidance. As GlobeOp Financial Services had been an archrival, the acquisition expanded SS&C’s market. Therefore, the elimination of competition is an added positive.

Currently, the price is in the range of $24.00–$25.00. The consensus estimates for 2012 and 2013 are moving upward. The estimate revision trend indicates a steep upward movement through fiscal 2015. As illustrated in the chart below, the stock should increase at a much higher rate than the estimate revision trend.

Windsor, Connecticut.-based SS&C has roughly 26 years of experience in providing business process automation and information processing management software to the financial service sector. The company offers its software on a hosted (licensing) and an on-premise (software-as-a-service) basis. The offerings help financial intermediaries to better manage back office as well as fund administration jobs. SS&C competes with State Street Corp. (STT) and DST Systems Inc. (DST).

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