A fundamental change in payments has occurred, as digital payments have started to become the norm for most businesses and individuals alike. Traditional cash-based transactions and credit or debit cards are slowly becoming obsolete due to the widespread popularity of these innovative solutions.

The real reason behind this massive popularity lies in its ease of usage, efficiency, speed, and security. According to a study by Grand View Research, the global digital payment industry is forecasted to reach $361.30 billion by 2030, growing at a CAGR of 21.1%.

Amid this backdrop, Deluxe Corporation (DLX) stands out in the digital payments market owing to its innovative solutions that cater to various businesses and individuals and aid commerce platforms. The company’s shares have surged 23.6% over the past three months, closing the last trading session at $23.19.

Now, let us dive deeper into the factors that could shape DLX’s performance in the near future.

Recent Developments

On January 21, DLX announced the launch of dlxPAY, a new mobile app designed to enhance the payment experience for merchants and partners. With the abundance of digital pay solutions in the market, the company’s new launch could strengthen its position in the market for e-pay solutions aimed at merchants and partners.

On January 14, DLX announced the integration of its Deluxe Payment Exchange eCheck solution with AccuTitle, one of the largest Title Production Software (TPS) providers in the United States.

The integration enables AccuTitle’s TitleFusion and Accuair customers to send escrow payments directly through Deluxe Payment Exchange, speeding up payment processes, cutting operational costs, and offering payees greater flexibility in receiving payments.

Stable Historical Growth

Over the past three years, DLX has demonstrated consistent growth across key financial metrics. Its revenue and EBITDA grew at a CAGR of 3.9% and 9.2%, respectively. Moreover, Operation income (EBIT) expanded at a CAGR of 2.1% over the same time period.

Sound Financials

For the fiscal 2024 third quarter that ended September 30, DLX’s total revenue amounted to $528.40 million. Its adjusted operating income increased 1.1% year-over-year to $79.20 million. Additionally, the company’s adjusted net income and adjusted EPS rose 7.4% and 6.3% from the prior year’s quarter to $37.50 million and $0.84, respectively.

Optimistic Analyst Estimates

Analysts expect DLX’s revenue and EPS for the fiscal 2025 first quarter (ending in March) to come in at $527.10 million and $0.75, respectively. In addition, the company exceeded the consensus EPS estimates in each of the four trailing quarters, which is impressive.

Looking at the full fiscal year ending December 2025, DLX’s revenue and EPS are expected to rise 1.1% and 2% from the prior year to $2.16 billion and $3.34, respectively.

Robust Profitability

DLX’s trailing-12-month gross profit margin of 54.10% is 71.9% higher than the industry average of 31.47%. Its trailing-12-month EBITDA margin stands at 19.07%, 34.2% higher than the industry average of 14.20%.

In addition, the company boasts a trailing-12-month levered FCF margin of 9.96%, which is 43% higher than the sector average of 6.96%. Also, the stock’s trailing-12-month CAPEX/Sales of 4.20% is 47.6% higher than the industry average of 2.84%.

Discounted Valuation

DLX is currently trading at a forward non-GAAP P/E of 7.08x, which is 65.1% lower than the industry average of 20.34x. Moreover, the stock’s forward EV/EBIT multiple stands at 13.33, 21.1% lower than the industry average of 16.90x.

Additionally, it has a forward Price/Sales multiple of 0.48, which is 68.9% lower than the industry average of 1.55x. This indicates that DLX is undervalued compared to its peers, offering potential upside for investors.

POWR Ratings Reflects Optimism

DLX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

DLX has a B grade for Value, driven by its discounted valuation metrics relative to the industry average. Moreover, the stock has a B for Growth, which is in line with its impressive historical growth.

Within the B-rated Outsourcing – Business Services industry, DLX is ranked #2 out of 38 stocks. Beyond what is stated above, we have also given DLX grades for Quality, Momentum, Sentiment, and Stability. Get all DLX ratings here.

Bottom Line

Driven by an increasing adoption of online payments by almost every organization, business, or individual, DLX, an industry forerunner, is thriving. With offerings catering to enterprises, small businesses, and financial institutions, the company’s growth prospects seem bright.

Given DLX’s attractive valuation, strategic industry position, and impressive historical growth, now could be the ideal time to consider adding the stock to one’s portfolio.

How Does Deluxe Corporation (DLX) Stack Up Against Its Peers?

Although DLX’s near-term outlook appears sound, it may be worthwhile to explore its industry peers, who also exhibit strong POWR Ratings. So, consider these A (Strong Buy) rated stocks from the Outsourcing – Business Services industry:

TDCX Inc. (TDCX)

Superior Group of Companies, Inc. (SGC)

ARC Document Solutions, Inc. (ARC)

To explore more A or B-rated Outsourcing – Business Services stocks, click here.

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DLX shares were trading at $22.85 per share on Monday afternoon, down $0.34 (-1.47%). Year-to-date, DLX has gained 1.15%, versus a 2.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Aritra_Gangopadhyay

Aritra is a financial journalist dedicated to breaking down complex financial topics into simple, actionable insights. Holding a Master’s degree in Economics, he uses his analytical expertise to help investors uncover unique opportunities for long-term success. More...

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