Heartland Upped to Strong Buy - Analyst Blog

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On Jul 9, Zacks Investment Research upgraded Heartland Payments Systems Inc. (HPY) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Heartland Payments witnessed some improvement in its earnings estimates following the first quarter results and the announcement of a new share repurchase program. The company's diversified product profile and enhanced merchant relationships have also been impressive. Additionally, this payment processor delivered positive earnings surprises in all of the last 4 quarters with an average beat of 12.3%.

On Apr 30, Heartland Payments reported first quarter earnings per share of 45 cents that comfortably outpaced the Zacks Consensus Estimate of 40 cents and year-ago quarter figure of 35 cents.

Results were primarily supported by 16.8% growth in net revenue, driven by a 3.8% increase in transaction processing volume and 2.2% hike in same store sales. These were partially offset by a 6.7% increase in total expenses. Consequently, operating margin edged up to 18.2% from 18.1% in the year-ago quarter.

Nevertheless, the steady performance supported the reaffirmation of Heartland Payment's guidance for 2013. The company is persistently working towards enhancing its margins by improving its top line, while also focusing on building a sturdy capital base.

Additionally, consistent dividend payouts along with the recent sanction of the share buyback program instill shareholder confidence and reflect earnings accretion on account of low share count.

Based on Heartland Payment's fundamental strength, the Zacks Consensus Estimate for 2013 rose 1.5% to $1.97 per share in the last 60 days, secured at the higher-end of the management's guidance and up 19.2% over the prior-year quarter. The estimate for 2014 stands at $2.21 a share, up 0.5% in the last 60 days. Meanwhile, no downward revision in estimates w! as witnessed for both the years.

The company's long-term growth, pegged at 14.6% and above the peer group average of 12.0%, should encourage positive estimate revisions in the future as well.

Other Stocks to Consider

Apart from Heartland Payments, other stocks that are outperforming in the financial sector include Official Payments Holdings Inc. (OPAY), Moody's Corp. (MCO) and AmTrust Financial Services Inc. (AFSI). All these stocks carry a Zacks Rank #1 (Strong Buy).