As Vantiv Inc. (VNTV) scaled an all-time high of $34.81 on Jul 15, the Zacks Investment Research upgraded the company by a notch to a Zacks Rank #1 (Strong Buy). Notably, this leading electronic payment provider’s shares have risen 7.5% since the beginning of 2014 and 17.9% since the company reported first-quarter results at the end of April.
Yesterday’s closing price represented a robust one-year return of about 25.1% against 17.4% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 1,521.8K.
Vantiv also delivered positive earnings surprises in 3 of the past 4 quarters, with an average beat of 1.4%.On Apr 30, the company reported first-quarter 2014 earnings per share (EPS) of 39 cents, which topped the Zacks Consensus Estimate by 11.4% and the year-ago quarter figure by 25.8%.
Rationale Behind Rank Upgrade and Stock Price Rise
Vantiv has been witnessing an improving earnings outlook. The company’s sustained operating leverage is aided by its strong network and merchant base through its multi-year merchant contract alliances and client referral network of Fifth Third Bancorp. These factors are expected to generate top-line growth in mid-single digits, earnings in double digits and a healthy cash flow.
Last month, Vantiv also consolidated its diversified portfolio by completing the acquisition of Mercury Payments Systems (Mercury) for about $1.65 billion. The value-added technological expertise and software solution services gained from Mercury will boost the company’s competitive edge and enable it to monetise on the opportunities offered by the evolving payments market.
Although elevated debt-levels, primarily due to the Mercury acquisition, remains a concern, Vantiv’s strategic growth initiatives are expected to lift returns and outlook going forward. Ratings agency – Moody’s Investor Service of Moody’s Corp. (MCO) also expects Vantiv’s adjusted debt-to EBITDA to improve to about 4x by 2015-end from the current level of over 5x. The scope of improvement should also help in buoying the market sentiment.
Given the improved performance outlook, the Zacks Consensus Estimate for 2015 rose by 5 cents to $1.97 per share in the last 60 days. Meanwhile, the estimate for 2014 remained intact at $1.73 a share for same period.
Moreover, the Most Accurate Estimate for Vantiv’s 2014 and 2015 earnings stands at $1.75 and $2.07 a share, resulting in an Earnings ESP of +1.2% and +5.1%, respectively. No downward estimate revision was witnessed for both the years. On year-over-year basis, earnings for 2014 and 2015 are expected to grow by 17.9% and 13.7%, respectively.
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