Judging Jack Henry (JKHY): a Shorty

 

 – Shorties are a new type of post for me that consist primarily of a table comparing several SSGs on the same company.  They contain minimal discussion and take less time to create, but still take forever to respace and reformat as WordPress remains way, way table unfriendly.

 

– As usual, I’m most interested in understanding and analyzing SSG judgments.  After the table, I evaluate the most important judgment in this chaotic market, the Forecast Low Price by four SSGs.  According to the BI-NAIC Stock Selection Handbook (page 108), the SSG’s Low Price is an estimate of how low the stock price might drop in the next five years. [my emphasis]

 

– The stock I’m analyzing is Jack Henry & Associates (JKHY) which provides data processing software and services to banks and other financial institutions.  It currently ranks #137 on “The Best 200 Small Companies” for 2008 by Forbes magazine.

 

 

Jack Henry (JKHY)	KimB from  BI’s First Cut	ArminF	AnnC from BI’s First Cut	Take           Stock
Date	9-2-08	9-14-08	10-17-08	10-22-08
Data	S&P	S&P	S&P	Hemscott
Price	$20.04	$21.04	$17.30	$17.80
52 week High & Low Price	$29.24 &           $19.50	$29.24 &        $19.02	$29.24 &        $14.76	n/a
Project Growth From	unknown	Last Q	Last Q	unknown
Sales Growth	11.00%        (from 2008)	13.00%	09.00%             (B)	11.10%
EPS Growth	11.00%            (same as EPS)	10.00%     (A)	08.80%             (C)	04.60%
High PE	21.5	23.5	20.0	26.3
High EPS	$1.92	$1.88	$1.80	$1.49
High Price	$41.30	$44.20	$36.00	$39.23
Value Line Estimated High Price = $30-50 on 8-22-08 when JKHY’s recent price was $24.15
Low PE	13.8	15.3	11.0	16.7
Low EPS	$1.17	$1.17	$1.17	$1.17
Low Price	$16.10             (Low PE x         Low EPS)	$13.31           (70% < 52     week low)	$12.90              (Low PE x         Low EPS)	$19.54           (Low PE x       Low EPS)
Upside/Down-side Ratio	5.4	3.0	4.3	impossible to calculate
Total Return	16.6%	17.0%	16.9%	18.7%
SSG Buy Under	n/a	$21.03	n/a	$21.04
RV/PRV	74.3 & 67.1       (no outs)	84.5 & 76.8    (2004 out)	69.5 & 63.7        (2004 out)	n/a
Quality	n/a	S&P = A+	n/a	TS = 2.6,       unacceptable
PTPM – 5 yr ave	22.1%              trend up	22.7%           trend down	22.7%              trend down	22.7%            trend n/a
ROE – 5 yr ave,   End Equity	14.7%              trend up	15.4%           trend up	15.4%              trend up	n/a
ROE – 5yr ave,    Start Equity	n/a	17.1%           trend even	n/a	17.1&            trend n/a
Debt to Equity –   5 yr ave	n/a	-0-               trend even	n/a	n/a

 

DISCUSSION:

 

– The Forecast Low Price is the single-most important SSG judgment during these crazy market times:  

 

** When JKHY was selling for $21.04, I used $13.31 for my Forecast Low Price, 70% below its 52-week low which is a really low method for me, but its current price has dropped to $15.40 in little more than a month and my SSG’s Low Price no longer seems low enough; 

 

** Ann used Low PE x Low EPS which is the preferred Low Price method for growth companies as it assumes no growth.  However, Ann did not explain why she used 11.0 for her Low PE as 15.3 was the lowest in the last 5 years;

 

** JKHY’s current price, in less than two months, has already fallen below Kim’s Low Price of $16.10;

 

** Take Stock’s $19.54 Low Price made no sense when its SSG was completed as it was higher than JKHY’s current price at that time and that is a SSG no-no.  TS does not follow all the SSG rules and I think that is a

big mistake!  

 

(A) I rechecked the analysts on 10-23 and they were averaging 11.8% with S&P and FactSet Call Street via CNN Money high at 15.00% and Reuters via Morningstar low at 13.30%.  Value Line was 13.50%, First Call via Yahoo was 13.57%, and Zacks was 13.83%.  JKHY’s EPS growth was 15.3% for the last five years, 10.4% for the last three, 2.6% for the last two, and its Sustainable Growth rate is 13.0%.  I don’t remember why I selected 10.00% for my SSG, but it’s clear that the company’s EPS growth has been declining.

 

(B) Ann’s 9.00% Sales growth is not explained which is key to her Preferred Procedure; Zacks estimated 12.82% Sales growth for the next 5 years.  If Ann had used 11.0% Sales Growth, and changed nothing else, her PP would have been 10.8% (instead of 8.8%).

 

(C) Ann’s 8.8% EPS growth comes from her PP with 3 overrides (22.7% PTPM, 36.2% Tax, and 86.4 M shares).  Her PP would have resulted in 10.9% EPS if she had only used the last three-year ave for PTPM (23.3 instead of her 22.7).

 

 

– Armin