On Thursday, BofA Securities increased its price target on shares of Jack Henry (NASDAQ: JKHY) to $205 from the previous target of $200, while reaffirming a Buy rating on the stock. The new price objective comes after the financial technology company reported its fiscal fourth-quarter earnings and provided management commentary.
The analyst from BofA Securities explained that the updated price target is based on a 35 times calendar year 2025 estimated price-to-earnings (P/E) ratio, which remains unchanged, as well as a discounted cash flow (DCF) analysis. The firm's DCF model now uses a weighted average cost of capital (WACC) of 7.19%, a slight decrease from the previous 7.54%, while the terminal growth rate is maintained at 3%.
In light of the recent financial results, the analyst has also revised the non-GAAP revenue and earnings per share (EPS) estimates for fiscal year 2025. The new forecast is set at $2,364 million in revenue and $5.83 in EPS, up from the former projection of $2,357 million in revenue and $5.74 in EPS. Additionally, BofA Securities has introduced its initial estimates for fiscal year 2027, predicting non-GAAP revenues of $2,720 million and non-GAAP EPS of $6.70.
The adjustment to the price target reflects a modest premium compared to the company's competitors. This premium is deemed appropriate by BofA Securities due to Jack Henry's consistent financial performance, as highlighted by the firm. The full details of the company's fiscal fourth-quarter results were included in the report.
In other recent news, Jack Henry & Associates reported a fourth-quarter earnings beat but missed revenue expectations.
Despite the shortfall, earnings per share (EPS) exceeded both Baird and Street estimates, primarily due to interest income gains and a favorable tax rate. The company's fiscal year 2025 revenue and EPS guidance midpoint projections are slightly above Street expectations, suggesting growth in the coming years.
Baird maintained its neutral rating on Jack Henry shares, while Wolfe Research retained its Peerperform rating. Both firms highlighted concerns about the deceleration in revenue growth despite the EPS beat.
Furthermore, Jack Henry reiterated its forecast for 7-8% non-GAAP revenue growth in FY25. The company's services and support revenue saw a 1.5% increase to $316.7 million, while processing revenue rose by 9.2% to $243.2 million compared to the prior year quarter.
InvestingPro Insights
Jack Henry & Associates (NASDAQ: JKHY) is currently trading at a significant earnings multiple with a P/E ratio of 31.77, reflecting a premium valuation in the market. This aligns with BofA Securities' view that the company deserves a modest premium compared to its competitors due to its consistent financial performance. Supporting this premium valuation, Jack Henry has demonstrated a robust track record, raising its dividend for 20 consecutive years and maintaining dividend payments for 35 consecutive years, indicative of its financial stability and shareholder-friendly policies.
InvestingPro data shows that Jack Henry has achieved an 8.12% revenue growth over the last twelve months as of Q3 2024, with a gross profit margin of 41.51%, underscoring its ability to generate earnings efficiently. Moreover, the company's return on assets stands at an impressive 14.08%, which is a testament to its effectiveness in utilizing its assets to generate profits.
For investors seeking a deeper dive into Jack Henry's financial health and future prospects, there are additional InvestingPro Tips available, which include insights on the company's cash flow, profitability predictions for the year, and its Price / Book multiple. These tips, along with real-time metrics and analyst targets, can be found on the InvestingPro platform for Jack Henry at https://www.investing.com/pro/JKHY.
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