NIC Inc.: Taking Advantage Of Tight Government Budgets

| About: NIC Inc. (EGOV)
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U.S. state and local governments shed about 244,000 jobs in 2011 and 249,000 jobs in 2010, according to government data. Since the height of the global credit crunch in mid-2008, almost 670,000 state and local government jobs have been eliminated.

But as the U.S. economy slowly heals, the outlook for state workers is beginning to improve. The U.S. unemployment rate in December fell to 8.5 percent, hardly an ideal level, but a marked improvement from the 10.1 percent unemployment rate recorded in 2009. As Americans get back to work and spend their hard-earned dollars, state budgets are recovering thanks to rising income tax and sales tax receipts.

Local budgets are likely to remain under pressure in 2012 because local governments depend on property taxes for revenue. It's true that supply- demand conditions and prices have stabilized in some real estate markets. But many other areas continue to struggle with high foreclosure rates and declining property values.

In short, municipal budgets are likely to be squeezed further this year, forcing municipalities to provide the same level of services with limited staff and resources.

NIC (NASDAQ:EGOV) works with more than 3,000 federal, state and local governments to build and maintain websites, online services and payment processing applications.

NIC's solutions allow governments to boost efficiency and reduce their overhead. For example, NIC enables millions of citizens across the country to purchase hunting and fishing licenses or renew their driver's licenses online. Businesses use NIC's websites to file paperwork with local authorities and pay taxes. Interstate trucking companies use NIC's services to secure the proper licenses to operate across state lines.

NIC employs a transaction-based, self-funded model that allows clients to develop web portals free of charge. NIC bears the initial cost of developing the site in exchange for a long- term contract and then collects a small fee for each transaction completed via the portal. This novel business model makes NIC's services cost efficient for its customers. It also saves governments from the protracted and uncertain process of securing funding to build these sites.

NIC's net margin has historically run in excess of 10 percent and has continued to widen as the company develops new services. These offerings can then be implemented in other states at little additional cost. The company has recently secured new contracts in Maryland, Oregon and Delaware.

The firm's innovative funding strategy has driven impressive annual revenue growth of 13.8 percent during the past three years. The Wall Street consensus estimate calls for the company's 2011 earnings per share to come in at $0.35, up from $0.19 three years ago.

Providing value to cash-strapped state and local governments, NIC is one of my top growth stock picks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.