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Jack Henry Earnings: Results Start to Level Out

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Jack Henry’s JKHY growth in the fiscal fourth quarter moved more in line with our long-term expectations, and the company finished the year roughly in line with our projections. While Jack Henry has faced some headwinds this year, we continue to be impressed by the relative stability of the wide-moat company’s operations. We will maintain our $174 fair value estimate and see the shares as about fairly valued.

Revenue for the quarter grew 11% year over year, or 8% excluding deconversion fees and acquisitions. Deconversion fees have been a headwind for Jack Henry in recent quarters, as stress in the banking system has reduced bank mergers and acquisitions. However, the company is now comping against a more depressed level, which eliminates the year-over-year drag. Near-term volatility in deconversion fees does not concern us. While the near-term impact of lower deconversion fees is negative, it also means fewer lost customers.

Adjusted operating margin improved to 22.9% from 20.9% last year. For the full year, adjusted operating margin was essentially flat, while reported operating margin was down due to lower deconversion fees. Long term, we think the scalable nature of Jack Henry’s business will allow for margin improvement. However, management’s guidance suggests margins will be roughly flat in fiscal 2024.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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