Jack Henry (JKHY) Up 0.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Jack Henry (JKHY). Shares have added about 0.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Jack Henry due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Jack Henry's Q2 Earnings Beat, Revenues Up Y/Y

Jack Henry & Associates reported second-quarter fiscal 2020 earnings of 94 cents per share, which surpassed the Zacks Consensus Estimate by 5.6%. Further, the figure surged 6.8% from the year-ago quarter.

Revenues improved 9% year over year to $419.12 million. The figure also outpaced the Zacks Consensus Estimate of $411.61 million.

Further, the company’s non-GAAP revenues came in $409.36 million, up 8% 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.

We believe Jack Henry’s continued core customer wins and robust new payment platform will continue to drive its business growth. Further, benefits from strategic acquisitions and expanding product portfolio are likely to sustain investor optimism.

Top-Line in Detail

Services & Support: The company generated $255.2 million revenues in this category (61% of revenues). Notably, the figure increased 8% from the year-ago quarter, owing to increase in data processing and hosting fees. Further, accelerating consulting fee revenues was a positive. Moreover, hike in implementation fees of the company’s private cloud offerings and deconversion fees contributed to the results.

Processing: Revenues worth $163.9 million came from this category (39% of revenues) during the reported quarter, surging 10% year over year. This can be attributed to hike in remittance fees and growth in card processing transaction volumes.

Segments in Detail

Core: The company generated $138.4 million revenues from this segment (33% of total revenues), improved 7% year over year.

Payments: This segment yielded $152 million revenues (36.3% of total revenues), climbing 10% from the year-ago quarter.

Complementary: This segment generated $113.5 million revenues (27.1% of total revenues), increasing 10% year over year.

Corporate & Other: The company generated $15.2 million revenues from this segment (3.6% of total revenues), declining 0.4% from the prior-year quarter.

Operating Details

In second-quarter fiscal 2020, total operating expenses were $325.4 million, reflecting an improvement of 9.1% year over year. As a percentage of revenues, the figure expanded 40 bps year over year to 77.6%.

This can primarily be attributed to rising headcounts, which led to an increase in personnel costs and salaries. This led to a surge in R&D, and selling, general and administrative expenses.

Consequently, operating margin came in 22%, contracted 100 bps year over year.

Balance Sheet

As of Dec 31, 2019, cash and cash equivalents totaled $72.5 million, which improved from $96.7 million as of Sep 30, 2019.

Trade receivables were nearly $204.7 million, down from $234.4 million in the previous quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.52% due to these changes.

VGM Scores

Currently, Jack Henry has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Jack Henry has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.