Jack Henry & Associates, Inc. (JKHY) in Monett, Miss., provides technology solutions and payment processing services to financial institutions based in the United States. It operates through four segments—Core; Payments; Complementary; Corporate; and Other. With a $12.09 billion market cap, the company is a constituent of the S&P 500 index. It has more than 8,500 clients across the country.

However, JKHY has an ISS Governance QualityScore of 8, indicating relatively high governance risk. The stock has plunged 2.3% in price year-to-date and 1.9% over the past five days due to the broader market correction. It is currently trading below its 200-day moving average of $165.11. 

Nonetheless, analysts expect the shares of JKHY to rebound by 5.1% over the next 12 months to hit $171.50.

Here is what could shape JKHY’s performance in the near term:

Mixed Growth History

JKHY’s revenues have increased at a 6.1% CAGR over the past three years. The company’s EBIT has increased 4.5% per annum over the past three years, while its levered free cash flow rose 10.5% over the same period. However, JKHY’s net income has declined at a 5.5% rate per annum over the past five years. Its EPS has fallen 4.4% over the past three years, while both its tangible book value and total assets declined 6.4% over this period.

Frothy Valuation

In terms of forward non-GAAP P/E, JKHY is trading at 34.64x, which is 48.9% higher than the 23.26x industry average. Its 2.47 forward non-GAAP PEG ratio is 66.5% higher than the 1.49 industry average.

Furthermore, the stock’s forward Price/Sales and Price/Cash Flow multiples of 6.32 and 24.36, respectively, compare favorably with the 3.70 and 20.98 industry averages. JKHY’s 19.33 forward EV/EBITDA multiple is 33% higher than the 14.53 industry average.

Impressive Growth Prospects

Analysts expect JKHY’s revenue and EPS to increase 10.4% and 18.7%, respectively, year-over-year to $466.43 million and $1.12in the about-to-be-reported quarter, ended December 2021. The $474.01 million consensus revenue estimate for the current quarter (ending March 2022) indicates a 9.3% improvement year-over-year. The Street expects the company’s EPS to rise 15.8% from its year-ago value in the current quarter.

In addition, the Street expects JKHY’s revenue and EPS to rise 8.7% and 14.3%, respectively, in fiscal 2022, and 7.3% and 9.2%, respectively, in fiscal 2023.

POWR Ratings Indicate Uncertainty

JKHY has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

JKHY has a C grade for Growth and Value. Its mixed financial performance over the past three years is in sync with the Growth grade. In addition, the stock’s 34.65 forward P/E multiple is slightly higher than the 27.28 industry average, justifying the Value grade.

Among 118 stocks in the Financial Services (Enterprise) industry, JKHY is ranked #18.

Beyond what I have stated above, view JKHY ratings for Momentum, Sentiment, Stability, and Quality here.

Bottom Line

JKHY entered a partnership agreement with IncredibleBank on January 19, under which it will revamp IncredibleBank’s technology and digital services to improve its efficiency. Since the launch of these technologies, IncredibleBank has witnessed substantial efficiency gains and improved customer gains. This partnership reflects the growing demand for JKHY’s services among the digital community banks in the U.S.

However, the broader market weakness has caused JKHY’s stock to slump over the past few months. And with stretched valuation metrics, JKHY might witness further price pullback in the near term before regaining its momentum. Thus, we think investors should wait until the markets stabilize before investing in the stock.

How Does Jack Henry & Associates, Inc. (JKHY) Stack Up Against its Peers?

While JKHY has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Forrester Research, Inc. (FORR), Consumer Portfolio Services, Inc. (CPSS), and Donnelley Financial Solutions, Inc. (DFIN), which have an A (Strong Buy) rating.

JKHY shares were trading at $160.34 per share on Tuesday morning, down $2.88 (-1.76%). Year-to-date, JKHY has declined -3.98%, versus a -8.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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