Why NetSpend Holdings Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of prepaid debit and payroll card services provider NetSpend Holdings (UNKNOWN: NTSP.DL  ) roared as much as 12% higher after reporting its fourth-quarter earnings results and receiving an upgrade from Compass Point.

So what: For the quarter, NetSpend reported a 17% increase in revenue to $89.7 million as adjusted earnings jumped 15% to $0.15 over the year-ago period. Furthermore, NetSpend provided preliminary 2013 guidance which calls for EPS of $0.76 to $0.81, signifying 35% year-over-year growth at the midpoint, which was higher than Wall Street was forecasting. Given this news, Compass Point upped its rating on NetSpend from "sell" to "neutral" and doubled its price target to $10 from $5.

Now what: I'm not exactly sure how many times I can browbeat readers into believing that credit service companies of all forms -- credit, prepaid debit, and prepaid payroll cards -- are going to grow at a phenomenal rate over the next decade, but this serves as another reminder. NetSpend's disadvantage is merely its size, which requires it to aggressively seek out new partnerships. However, its recent growth would suggest that, at just 16 times 2013's midpoint forecast, NetSpend could head even higher. I'd suggest giving the entire credit services sector another look.

Craving more input? Start by adding NetSpend Holdings to your free and personalized Watchlist so you can keep up on the latest news with the company. 

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