Jack Henry & Associates Inc Valuation – August 2018 $JKHY

Company Profile (excerpt from Reuters): Jack Henry & Associates, Inc., incorporated on October 4, 1985, is a provider of information processing solutions for community banks. The Company offers a range of products and services, including processing transactions, automating business processes, and managing information financial institutions and diverse corporate entities. The Company operates in two segments, which include bank systems and services (Bank) and credit union systems and services (Credit Union). The Company provides its products and services through approximately three business brands, which include Jack Henry Banking, Symitar and ProfitStars. The Core software system consists of the integrated applications required to process deposit, loan, and general ledger transactions, and to maintain centralized customer/member information. Jack Henry Banking markets over three core software systems to banks and Symitar markets over two core software systems to credit unions. The Company’s subsidiaries include Jack Henry Services, Inc., Jack Henry Software/Commlink, Inc., Symitar Systems, Inc., Check Collect, Inc. and Bayside Business Solutions, Inc.


Downloadable PDF version of this valuation:

ModernGraham Valuation of JKHY – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,609,021,562 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.25 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 161.34% Pass
6. Moderate PEmg Ratio PEmg < 20 39.43 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.79 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.25 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.44 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $3.52
MG Growth Estimate 12.77%
MG Value $119.67
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $50.98
MG Value based on 0% Growth $29.89
Market Implied Growth Rate 15.46%
Current Price $138.63
% of Intrinsic Value 115.85%

Jack Henry & Associates, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.9 in 2014 to an estimated $3.52 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 15.46% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Jack Henry & Associates, Inc. revealed the company was trading above its Graham Number of $37.51. The company pays a dividend of $1.18 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 39.43, which was above the industry average of 33.97. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.13.

Jack Henry & Associates, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.13
Graham Number $37.51
PEmg 39.43
Current Ratio 1.25
PB Ratio 8.79
Current Dividend $1.18
Dividend Yield 0.85%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $362,030,000
Total Current Liabilities $289,238,000
Long-Term Debt $105,000,000
Total Assets $1,905,368,000
Intangible Assets $1,088,493,000
Total Liabilities $682,283,000
Shares Outstanding (Diluted Average) 77,546,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.69
Jun2017 $3.14
Jun2016 $3.12
Jun2015 $2.59
Jun2014 $2.19
Jun2013 $1.94
Jun2012 $1.74
Jun2011 $1.59
Jun2010 $1.38
Jun2009 $1.22
Jun2008 $1.16
Jun2007 $1.14
Jun2006 $0.96
Jun2005 $0.81
Jun2004 $0.68
Jun2003 $0.55
Jun2002 $0.62
Jun2001 $0.61
Jun2000 $0.40
Jun1999 $0.38
Jun1998 $0.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.52
Jun2017 $2.82
Jun2016 $2.54
Jun2015 $2.17
Jun2014 $1.90
Jun2013 $1.69
Jun2012 $1.52
Jun2011 $1.37
Jun2010 $1.23
Jun2009 $1.13
Jun2008 $1.04
Jun2007 $0.93
Jun2006 $0.79
Jun2005 $0.68
Jun2004 $0.61
Jun2003 $0.55
Jun2002 $0.52

Recommended Reading:

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Jack Henry & Associates Inc Valuation – Initial Coverage $JKHY

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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