Electronic payments processor
, a focus of analyst animus these days, was getting some positive attention on Tuesday.
Thomas Weisel Partners upped its rating on Concord EFS from attractive to buy based on its belief that earnings will grow 20% to 25% in 2003, which it says makes the stock's valuation appealing. Concord trades at 17.4 times 2003 forecasts, below a 10-year average of 29 times forward-year multiples.
The shares were recently up 4.8%, to $15.45.
The multiple contraction reflects Concord's announcement last week that 2002 earnings will be well below prior expectations because recent acquisitions had forced expenses higher. It also cited delays in implementing new business. On the news, Bear Stearns, Morgan Stanley, and U.S. Bancorp Piper Jaffray downgraded their ratings on the stock.
To reflect Concord's new earnings guidance, Thomas Weisel Partners reduced its 2002 estimate to 69 cents a share from 77 cents a share, and its 2003 estimate to 85 cents a share from 97 cents a share. But the investment bank remains optimistic about the industry and Concord EFS' position within it. The company -- which handles PIN-based debit-card transactions -- is forecast to increase sales 20% in 2002.
"The primary long-term driver for the company, growth in card-based consumer spending, remains healthy for the industry as well as for Concord," said Matthew Park, an analyst at Thomas Weisel, in a note. "We expect Concord to maintain its strong competitive position within the ATM and debit network space, which position it to benefit from further increase in the merchant acceptance of debit cards."
According to Park, Concord EFS has room for multiple-expansion. The stock trades at a similar valuation to competitor
. But Concord is expected to increase earnings 23% in 2003, while First Data is forecasting 16% earnings growth next year.
"As Concord EFS begins to show a re-acceleration in its earnings drivers by the fourth quarter of 2002, we anticipate that its earnings multiple will increase above First Data's," Park said.
On news of the upgrade, the stock, which has had a tough summer, was up 4.68%, at $15.44.
Last month, Concord was pressured by quality-of-earnings concerns. According to an article in
, some investors feared that the company used the sale of certain terminals leased to merchants, which it reported as other income, to make up for rising expenses. ("The other income category is a legitimate part of our earnings," said Melinda Mercurio, a Concord spokeswoman.)
Separately, Concord was forced to deny rumors -- which had knocked one-third of the value off its stock on Aug. 8 -- that it was being investigated by the
Securities and Exchange Commission