Over the last three quarters, NetSpend Holdings (NASDAQ:NTSP) has beaten the Zacks Consensus Estimate twice and matched once. This provider of prepaid debit and payroll cards will report again early next month.
Earnings estimates for this Zacks #2 Rank (Buy) moved higher after its second-quarter report from August 2, which included a surprise of more than 18% and an enhanced outlook for the full year. Moreover, Netspend Holdings has a long-term expected earnings growth rate of about 20%.
Q3 on its Way
NetSpend Holdings is scheduled to release its third quarter earnings on November 1. The Zacks Consensus Estimate is currently at 12 cents per share, which is up 52.1% from the year-ago quarter.
On August 2, NetSpend reported second-quarter earnings of 13 cents per share, which was 18.18% higher than the Zacks Consensus Estimate.
Total revenue jumped 14.7% year over year to $85.3 million, driven by a rise in gross dollar volumes (GDV) of 15.4% year over year to $3.0 billion. The number of active cards with direct deposit surged 24% to 957,000. Moreover, active cards with direct deposit accounted for 43% at the end of June 2012, against 37% in the prior-year period.
While cash and cash equivalents fell to $31.2 million at the end of June 2012 from $72.1 million at the end of 2011, long-term debt plunged to $10.0 million from $58.5 million. Lower debt should also mitigate the cost of borrowing in the upcoming quarters. Additionally, operating cash flow spiked 164.3% year over year to $38.6 million at the end of June 2012.
Management raised its top line projection for the full year to between $347 million and $353 million from the prior expectation of $338 million to $347 million. Adjusted EBITDA is now anticipated to be between $93 million and $97 million, up from the prior range of $90 million to $94 million. Meanwhile, the operating net income per share projection was raised to between 54 cents and 58 cents per share, compared to the prior range of 51 cents to 55 cents.
Earnings Momentum on the Right Track
The Zacks Consensus Estimate for 2012 is 6.5% higher than 3 months ago to 49 cents per share, implying year-over-year growth of 26.1%.
For 2013, the Zacks Consensus Estimate stands at 60 cents a share, an improvement of about 9.1% in the same time. This represents a year-over-year increase of 22.7%.
NetSpend Holdings currently trades at a forward P/E of 20.2x, reflecting a 1% premium to the peer group average of 20.0x. Its price-to-book ratio of 4.8x is substantially higher than the peer group average of 1.5x. Given the company's compelling fundamentals, the premium valuation is justified and well cushioned by its estimated long-term EPS growth rate of 20.0% versus 14.0% for the peer group.
With respect to return on equity (ROE), the stock looks attractive. It has a trailing 12-month ROE of 23.6%, which is significantly above its peer group average of 8.9%.
Chart Echoes Upward Trend
Barring plateaus at some intervals, NetSpend Holdings had a steep advance in the last 6 months. Shares have been consistently trading above its 200-day moving average since mid-June 2012, while it has fared well with respect to the 50-day moving average since September-end 2012.
The stock has also outperformed the year-to-date NASDAQ index, with an astounding year-to-date return of 22.55% compared to an NASDAQ tally of 17.62%. Volume is fairly strong, averaging 825.32K daily.
Headquartered in Austin, Texas and founded in 1999, NetSpend Holdings and its operating wings offer alternative financial services primarily through general purpose reloadable prepaid debit and payroll cards in more than 100,000 locations across the U.S. Its customer-base mainly consists of about 60 million of unbanked, underbanked and other consumers, who are given access to FDIC-insured depository accounts along with a customized products and services. With a market capitalization of about $741.9 million, it competes with Green Dot Corporation (NYSE:GDOT) and DFC Global Corp. (NASDAQ:DLLR), among others.