On Sep 13, Zacks Investment Research upgraded Vantiv Inc. (VNTV) by a notch to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Earnings estimates of Vantiv witnessed accretion on the back of robust second-quarter 2014 results and a raised growth outlook. Moreover, strategic merchant service alliances like the one with Comerica Bank last month and the latest with Apple Inc.’s (AAPL) mobile wallet, Apple Pay, further raises the company’s growth potential in the coming period.
Along with a strong network and merchant base, the acquisition of Mercury Payments Systems in June this year is aiding Vantiv’s initiatives to strengthen its market position in the rapidly evolving payments’ space. Mercury has brought in software solution services and value-added technological expertise, which should boost the company’s competitive and operating leverage.
On Jul 31, Vantiv reported second-quarter 2014 earnings per share (EPS) of 47 cents, which topped the Zacks Consensus Estimate by 9.3% and the year-ago quarter figure by 17.5%. Additionally, this integrated payment processor delivered positive earnings surprises in 3 of the past 4 quarters, with an average beat of about 3.0%.
Results benefited from 12% year over year top-line growth, driven by improvement across merchant and financial institution services. This was partially offset by lower revenue per transaction, higher operating and interest expenses, owing to the debt incurred from the Mercury acquisition, which also reduced cash flows marginally. Nonetheless, adjusted EBITDA rose 7%, while total transactions witnessed strong double-digit growth of 15% during the quarter.
Strong Outlook
Despite high debt and acquisition costs, management expects to generate top-line growth of 19–20% in 2014, up from the prior mid-single digit estimate. EPS is also projected to grow higher by 19–22% in 2014, up from previous range, while EPS in third-quarter 2014 is expected to surge by 28–30% along with a healthy cash flow. These factors keep up the confidence of both investors and ratings agencies. They also remain optimistic of Vantiv’s potential to reduce leverage modestly by 2015-end.
Based on an a solid outlook, the Zacks Consensus Estimate for 2014 and 2015 rose by 1.2% and 5.6% to $1.75 and $2.08 per share, respectively, in the last 60 days. On a year-over-year basis, earnings for 2014 and 2015 are expected to grow by 19.3% and 18.4%, respectively. Notably, no downward estimate revision has been witnessed for either year.
Other Stocks to Consider
Other financial stocks that warrant a look include Green Dot Corp. (GDOT) and Avis Budget Group Inc. (CAR). Both these stocks sport the same Zacks Rank as Vantiv.
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