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Stock Strategist

Banking on Stability

Wide-moat Jack Henry's future is bright, if not quite as bright as the recent past.

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 Jack Henry's (JKHY) fiscal 2015 first-quarter results contained no major surprises. Revenue increased 8% year over year. While the growth figure was helped slightly by fairly strong license sales, which can be lumpy quarter to quarter, this level was in line with recent results and the growth rate we expect going forward. Electronic payments remained a key pillar, with the company seeing a 9% growth rate in this area. Jack Henry is on track to achieve our full-year expectations, and we are maintaining our $48 fair value estimate and wide Morningstar Economic Moat Rating.

While Jack Henry retained its top-line traction in the quarter, margin expansion stalled, with operating margins coming in at 25.9% compared with 26.2% last year. Management had said it expected margins to hold flat in fiscal 2015 as the company is making some investments to support future growth, and it reiterated this guidance on the call. We have always believed that the rate of margin expansion the company achieved in recent years was unsustainable, so it does not surprise us to see a pause on this front. Still, we think the company can achieve some modest margin expansion longer term due to the scalability of the business.

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Brett Horn does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.