Why Is Jack Henry (JKHY) Down 9.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Jack Henry (JKHY). Shares have lost about 9.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Jack Henry due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Jack Henry's Q4 Earnings Beat, Revenues Up Y/Y
Jack Henry & Associates reported fourth-quarter fiscal 2020 earnings of 80 cents per share, which surpassed the Zacks Consensus Estimate by 2.6%. Further, the bottom line increased 1.3% from the year-ago quarter.
Revenues improved 4.3% year over year to $410.5 million. However, the top line missed the Zacks Consensus Estimate of $410.9 million.
Further, the company’s non-GAAP revenues were $399.8 million, up 4% on a year over year basis.
The top line was driven by solid performance of Core, Payments and Complementary segments during the reported quarter. Additionally, accelerating processing, and services and support revenues contributed to the results.
However, headwinds related to coronavirus pandemic especially in the Payments segment were concerns. Moreover, sluggish Corporate segment was an overhang.
Top-Line in Detail
Services & Support: The company generated revenues of $247.2 million from this category (60% of revenues). Notably, the figure improved 3% from the year-ago quarter, courtesy of increase in data processing and hosting fees. Further, spike in deconversion fees contributed to the performance.
Processing: This category yielded revenues worth $163.3 million (40% of revenues) during the reported quarter, up 7% year over year. This can be attributed to growth in card processing transaction volumes and hike in associated fee revenues. Further, Paycheck Protection Program lending line remained a major positive and surge in its related transaction and digital revenues drove processing revenues.
Segments in Detail
Core: The company generated revenues of $141.5 million from this segment (34.5% of total revenues), improving4% year over year.
Payments: This segment yielded revenues of$145.5million (35.4% of total revenues), increasing3% from the year-ago quarter.
Complementary: This segment generated $114 million revenues (27.8% of total revenues), increasing 9% year over year.
Corporate & Other: The company generated revenues of $9.5 million from this segment (2.3% of total revenues), down12% from the prior-year quarter.
In fourth-quarter fiscal 2020, total operating expenses were $333.7million, reflecting an improvement of 6% year over year. This can primarily be attributed to rising headcounts, which led to an increase in personnel costs and salaries, and rising costs related to the company’s card processing platform.
As a percentage of revenues, the figure expanded 150 basis points (bps) year over year to 81.3%. This was due to expansion of 100 bps year over year in the research and development expenses, which as a percentage of revenues was 7%. Selling, general and administrative expenses remained flat year over year at 12% as a percentage of revenues.
Notably, operating margin was 19%, contracting 100 bps year over year. This can primarily be attributed to disruptions caused by coronavirus pandemic.
As of Jun 30, 2020, cash and cash equivalents totaled $213.3 million, which improved from $109.5 million as of Mar 31, 2020. Trade receivables were nearly $300.9 million, up from $212.1 million in the previous quarter.
Further, current and long-term debt stood at $323,000 at the end of the fiscal fourth quarter compared with $55.2 million at the end of the fiscal third quarter.
For fiscal year 2021, the company projects GAAP revenues between $1.75 billion and $1.77 billion. The company anticipates non-GAAP revenues to exhibit year-over-year growth between 5.5% and 6.5%.
Further, earnings per share for fiscal 2021 are expected within the range of $3.70-$3.75.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -8.38% due to these changes.
At this time, Jack Henry has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Jack Henry has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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