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Advanced Drainage, Jack Henry Associates, Visa, Mastercard and Global Payments as Zacks Bull and Bear of the Day

Zacks Equity Research
·11 min read

For Immediate Release             

Chicago, IL – August 27, 2020 – Zacks Equity Research highlights Advanced Drainage Systems WMS as the Bull of the Day and Jack Henry Associates JKHY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Visa Inc. V, Mastercard Inc. MA and Global Payments Inc. GPN.

Here is a synopsis of all five stocks:

Bull of the Day:                                                 

Advanced Drainage Systems is a Zacks Rank #1 (Strong Buy) and it sports the growth divergence that I love to see. I see a D for Value and an A for Growth and right away I know that I am on the right path. Let's take a deeper look at this stock as it is the Bull of the Day.

This building products name is very strong here, one of the names that continues to pop up on the list of new 52-week highs. This is what I have been talking about in the newsletter services I run -- sticking with the winners.

Earnings History

The earnings history isn’t that good here. But we don’t buy stocks based on the earnings history. This stock has missed 3 of the last 4 quarters, but the most recent report was a beat of the Zacks Consensus Estimate.

The most recent report was the lone beat and it was a big one. The company reported $0.83 in EPS when $0.65 was expected. That 18-cent beat translates into a positive earnings surprise of 27%.

Estimate Revisions

We see a slew of positive earnings estimate revisions.

This quarter has moved from 78 cents to 97 cents over the last 30 days.

Next quarter has more than tripled, moving from 11 cents to 37 cents.

The full year numbers has jumped from $1.53 to $2.43

Next year is looking good too, moving from $1.43 to $2.34.

We would expect next year to show some earnings growth after the next report as there will be better visibility.

Valuation

So there is an issue here, we see the forward PE at 23x which is not terrible. The 6.6x book multiple is the issue. That is a lot even for a name like this that is growing at 23% on the topline. The 2.2x sales is a good spot to be at and margins are headed in the right direction.

Operating margins went from 3.45% to 5.7% and that is just what we like to see. Net margins have moved from -11% to 5.71% again, just what we like to see.

Bear of the Day:

Jack Henry Associates is a Zacks Rank #5 (Strong Sell) that offers technology solutions and payment processing services to community banks.

The stock was having a great year, making all-time highs above $200, before its recent earnings report. Now investors must decide if the selling was overdone or if there is a bigger issue at hand.  

2020 Was Looking Good

Jack Henry had been marching higher all year after hitting pandemic lows around the $125 area. The stock was trading around $160 back in May when a big eps beat took the stock to $180. After a few months of trading sideways, it broke above $200 and then hit the wall after this quarter’s earnings report.

Stock Plunges After EPS

The headline beat on EPS didn’t tell the whole story as the company missed on revenues. While June was the strongest sales month in the company’s history, they see headwinds regarding revenue for the first half of 2021. Year over year revenue growth slowed from 12% to 4% and payments fell to 3% from 11%.  

The stock reacted violently, moving from $200 to $180. Since the initial fall, the selling hasn’t stopped and the stock is now 16% off the highs.

Estimates

Analysts dropped estimates across all time frames after the recent earnings report.  For the current year, estimates have ticked lower by 5% over the last week, going from $3.96 to $3.76. For next year, estimates have fallen 7.3%.

Technical Take

The stock was churning around the $180 level before breaking higher. After earnings, that prior support was tested and failed, which helped the stock fall another leg lower. The bulls are supporting the 200-day at $165, but if that were to fail and break the recent lows, look for the $150 level to come into play. This is the 61.8% retracement from the March lows to recent highs.

In Summary

It's tempting to buy this stock after the recent drop. The 200-MA is being defended and it's down almost 20% from highs. However, if we see some market weakness, that level could easily break and the traders trying to play the bounce will likely be new sellers. Be patient with this one as the fundamental issues will last into next year.

Additional content:

B2B Adopts Digital Payments: 3 Stocks to Gain

One pertinent change brought about by the coronavirus is the tremendous use of technology with varying degrees across different industries.

The payments industry in particular was already undergoing a massive shift to the digital from its physical mode. Evidently, it saw an accelerated use of technology by customers and businesses.

A marked development was witnessed on the adoption of digital payment methods by small businesses which in the pre-COVID-19 era, had relied on age-old payment methods via physical or bank channels, which were mostly and full of hassles.

Shift to Digital Payments

Per a Mastercard study of small business owners across North America, 76% respondents confirm that the pandemic prompted them to go online with 82% businesses changing the ways of sending and receiving payments. Citing difficulty with cash flow and payment collection, 50% added a new digital service for collecting funds while one in four transitioned to e-invoicing. With 68% complaining that the use of cash and check deposits are time consuming, small business entrepreneurs saved the long hours by resorting to cashless options more frequently during the pandemic.

Online card payments saw the maximum surge at 60% while the use of cash (34%) and checks (24%) decreased more than any other payment type amid the COVID-19 crisis.

Business to Business Payments Gather Steam

Given the financial and operational stress due to the sluggish business activities caused by the coronavirus outbreak, small businesses are suffering fund crunch associated with late payments and slow processing for cash and checks. At a time when solid liquidity is the need of the hour, a single payment delay is enough to topple the operations of small businesses. This glitch prompted many small-time players to turn to digital services for expediting their payment mechanism.

A Mastercard survey highlighted that owing to better speed, security and transparency, more than half (57%) of small business players are increasingly opting for digital services regarding business-to-business (B2B) payments since the onset of the pandemic. Also, nearly two-thirds (64%) of small businesses are actively trying to dissuade  clients from using cash and checks.

Digital Payments Here to Stay

The trend of digital payments is here to stay even after the ongoing pandemic subsides. This can be gauged from the favorable sentiment building around the digital platforms and with growing customer satisfaction. 70% of small business firms are willing to invest in the technology required to advance their payment systems while 73% proprietors consider digital channels to be the new normal for their businesses going forward.

Business to Business Digital Payments: A Huge Market

Global B2B payments market value was $125 trillion in 2019. According to ResearchAndMarkets.com, the global digital B2B payments market observed stable growth in the past few years and the market is further expected to rise at a staggering rate during the 2020-2024 forecast period.

Growth in the global digital B2B payments market will be bolstered by a host of drivers like expanding real-time payments, increasing adoption of cloud-based solutions, escalating smartphone penetration, emerging B2B e-commerce industry, swelling business process automation, rising urbanization, growing cross-border payments, etc.

Stocks in Focus

Based on these evolving trends, we zero in on a few stocks that have been catering to small businesses and will hopefully gain traction from the momentum. Each of these stocks currently carries a Zacks Rank # (Hold). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Visa Inc.launched its Visa B2B connect last year, which is a fast, safe and more efficient network, designed specifically to overcome the obstacles in the cross-border corporate payments space. Visa B2B Connect network has a goal to expand to more than 100 countries in 2020 from 30 at launch in June 2019.

The stock’s bottom line surpassed estimates in three of the trailing four quarters (meeting the consensus mark in one), the average beat being 2.42%.

Mastercard Inc. is modernizing the business-to-business (B2B) payment ecosystem with Mastercard Track, launched in 2018 as a trade platform to address identity, compliance and payment management needs. It helps supplier and buyer partners tackle the systemic challenges of business-to-business payments, reinventing how businesses send and receive funds so that B2B payments can keep pace with innovation and liberate enterprises from the flaws in the system.

Earnings of the stock surpassed estimates in each of the last four quarters, the average being 9.11%.

Global Payments Inc. acquired Total System Services last year. This combined entity will provide payment services for 3.5 million small to medium-sized merchants around the world and more than 1,300 financial institutions across 100 countries roughly.
Earnings of the stock surpassed estimates in each of the last four quarters, the average being 5.79%.

Zacks’ Single Best Pick to Double

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.

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Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
 
Mastercard Incorporated (MA) : Free Stock Analysis Report
 
Visa Inc. (V) : Free Stock Analysis Report
 
Jack Henry Associates, Inc. (JKHY) : Free Stock Analysis Report
 
Global Payments Inc. (GPN) : Free Stock Analysis Report
 
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