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CheckFree Ascends on Upgrade

The electronic bill-payments company rises after a Citigroup analyst upgrades the stock.



stock rose Thursday after an analyst upgraded the online bill-payment company to 'buy', noting less downside risk to shares.

Shares of Norcross, Ga.-based CheckFree recently added $2.42, or 6.1%, to $42.18.

Citigroup's Tony Wible wrote that despite slowing electronic bill-payment adoption, CheckFree shares should benefit from better year-over-year comparisons and more adoption of so-called bill presentment, where the target customer is a business that offers a monthly service -- like a utility or cable company -- and wants to save on the costs of sending out paper bills.

"With postage going up 2 cents, many billers will cross the 40 cent threshold for postage, which may act as a catalyst for bill presentment adoption," Wible wrote.

In addition, he cited a moderate improvement in e-bill payment transaction growth rates and expanding margins as other reasons for the upgrade.

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Wible lowered his target multiple to 21.5 times to 23 times, but said that it was more than offset by strong EPS growth implied by his $2.33-a-share calendar-year 2008 forecast. He raised his target price to $50 from $46.

In addition, Wible said that "there is less downside risk to CheckFree as consensus numbers have been reduced following the last two disappointing quarters. This pessimistic view is reflected in CheckFree's stock price which is down 16% year to date."

When it

last reported earnings, CheckFree forecast pro forma EPS between 40 cents and 42 cents, on revenue of $230 million to $235 million for the December quarter.

Analysts polled by Thomson First Call expected pro forma net income of 45 cents a share and revenue of $238.3 million. Since then, the consensus has lowered expectations to 42 cents a share on sales of $232.9 million for the current quarter.

Wible said that the

$100 million stock buyback should help incremental growth as well. (Citigroup or its affiliates has a net sales short position of 1% or more of stock in CheckFree, and the firm has provided non-investment banking services to the company.)

Wible added that CheckFree would benefit from adding another unit to its business, such as money transfer, to help stave off pricing pressure while helping the company increase margins to support EPS growth.