Jack Henry & Associates, Inc.

Jack Henry & Associates, Inc. (NASDAQ: JKHY) is a leading provider of technology solutions and payment processing services for the financial services industry. Jack Henry Banking, Symitar, and ProfitStars are the three business brands JKHY distributes its products and services. Its operating segments are 1) Services and support income, comprising private and public cloud fees, product delivery and services, and on-premises support fees, and 2) Processing revenue, consisting of remittances, card fees, and transaction and digital revenues. SilverLake, CIF 20/20, Core Director, and Episys are JKHY's core software solutions.

Why Should Investors Book Profit?

• Weak Liquidity Profile: The company's current ratio at the end of Q2FY22 is 1.25x, compared to the industry median of 1.59x. This implies relatively lackluster liquidity profile against the industry median.
• Increase in Debt: JKHY Debt/Equity ratio at the end of Q2FY22 is 0.19x increased from 0.05x at the end of Q1FY22, implying a higher balance sheet risk.
• Margin Stress: The company reported gross margins of 42.7% in Q2FY21 (ended December 31, 2021) compared to the industry Median of 51.7%, indicating significant stress on the topline performance. The company's net margin fell to 19.4% in Q2FY22 vs. 20.9% in Q1FY22.
• Technical weakness: On the daily chart, JKHY’s prices are trading below the horizontal trend line and facing resistance of the same. Moreover, the momentum oscillator RSI (14-period) is trading at ~61.36 level, reversing from the higher levels. However, On the daily charts the prices are trading above the trend-following indicators 21-period and 50- period SMA, which may act as a support level for the stock. An important support level for the stock, is placed at USD 160 while the key resistance level is placed at USD 195.

 Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

JKHY's share price has inclined 16.48% in the past three months and is currently leaning towards the higher band of the 52-week range of USD 146.10 to USD 179.98. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 154.96.

Considering the company's increased debt, weak liquidity profile, stress in margins, current valuation and associated risks. We recommend a "Sell" rating on the stock at the closing price of USD 176.05, up 3.52% as of February 25, 2022.        

Three-Year Technical Price Chart (February 25, 2022). Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Disclaimer

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