On Thursday, CoreCard Corp. (NYSE: CCRD) experienced a shift in stock rating as B.Riley downgraded the company from Buy to Neutral, adjusting the price target to $15.00 from the previous $19.00. The change in valuation reflects concerns over CoreCard's future revenue, as its significant client Goldman Sachs Group , Inc. (NYSE: NYSE:GS), which accounts for 62% of CoreCard's business through its processing work for Apple, Inc. (NASDAQ: NASDAQ:AAPL), is reportedly in discussions to transfer the Apple Card portfolio to JPMorgan Chase & Co. (NYSE: NYSE:JPM).
The potential sale of the credit card portfolio by Goldman Sachs to JPMorgan Chase poses a risk to CoreCard's contract renewal. JPMorgan's robust internal processing capabilities for credit cards could lead to the services being managed in-house, reducing the likelihood of extending CoreCard's existing contract. Although CoreCard still has roughly a year remaining in its agreement with Goldman, the impending deal raises uncertainty regarding the contract's future.
Despite the concerns, CoreCard has seen positive growth in its revenue streams from a varied base of banks and financial technology companies, with an increase in the mid-teens projected for this year. This diversification in clientele is a significant strength for the company. Nonetheless, the potential loss of the Apple business through Goldman Sachs could substantially impact CoreCard's earnings potential.
The analyst's outlook suggests that until there is more clarity on the situation with Goldman Sachs and the Apple Card, CoreCard's stock is unlikely to reach the previously set price target of $19.00. The company's financial position and stock valuation will be closely watched by investors as the situation with its major client unfolds.
In other recent news, CoreCard Corporation reported a decline in total revenue of 12% year-over-year, amounting to $13.8 million in the second quarter of 2024. This was primarily due to lower license revenue and decreased professional services revenue from its largest customer, Goldman Sachs.
However, CoreCard's professional services revenue surpassed expectations, and the company has seen a 34% growth in revenue excluding its largest customer and other specific impacts. The adjusted EBITDA for the quarter was $2.5 million, a decrease from $4.8 million in the same quarter of the previous year.
In terms of analyst insights, CoreCard's operating margin declined to 8% from 17% the previous year. Despite the downturn, the company repurchased shares worth $2.1 million in Q2 2024. As part of its future plans, CoreCard aims to diversify its revenue streams and reduce reliance on its largest customer. On the brighter side, professional services revenue has unexpectedly outperformed, indicating potential stability, and the company has successfully onboarded new customers.
These recent developments highlight CoreCard's commitment to strategic growth and diversification. The company is also focusing on investments in a new platform, Corfinity, expected to contribute to long-term growth.
InvestingPro Insights
CoreCard Corp. (NYSE: CCRD) presents a mixed financial picture according to recent InvestingPro data. The company's market capitalization stands at $111.46 million, with a P/E ratio of 72.34, indicating a high earnings multiple relative to its current stock price. This valuation metric aligns with one of the InvestingPro Tips, which notes that CCRD is "Trading at a high earnings multiple."
Despite the downgrade and potential loss of a major client, CoreCard maintains a strong balance sheet. An InvestingPro Tip highlights that the company "Holds more cash than debt on its balance sheet," which could provide financial flexibility as it navigates the uncertain future of its contract with Goldman Sachs. Additionally, the company's liquid assets exceed its short-term obligations, suggesting a solid near-term financial position.
The company's revenue for the last twelve months as of Q2 2023 was $52.43 million, with a revenue growth of -13.66% over the same period. This decline in revenue underscores the concerns raised in the article about the potential impact of losing the Apple Card portfolio business. However, it's worth noting that analysts predict the company will remain profitable this year, according to another InvestingPro Tip.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for CoreCard Corp., providing a deeper understanding of the company's financial health and market position.
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