What happened
Shares of Jack Henry & Associates (JKHY 0.93%) were down 8% as of 10:59 a.m. ET on Wednesday following earnings results for the fiscal fourth quarter of 2023 (which ended in June).
The financial technology company delivered a solid fiscal fourth-quarter earnings report for 2023, with revenue and profits growing consistent with historical trends. But the company offered lower-than-expected earnings guidance for fiscal 2024.
NASDAQ: JKHY
Key Data Points
So what
Jack Henry finished fiscal 2023 on a high note. Revenue grew 7% for the full year, while fourth-quarter revenue was up 11% year over year. Growth was driven by solid revenue increases in services and support, in addition to higher revenue from payment processing.
The company completed its strongest quarter in history in terms of sales bookings. This follows a record set in the same quarter a year ago. Jack Henry signed 63 new clients to its Banno digital platform, which allows financial institutions to offer customers more choice and control over their financial data.
However, despite expecting higher margins in fiscal 2024, management is calling for earnings per share in the range of $4.92 to $4.99. This guidance falls short of the consensus analyst estimate that was projecting $5.32. Management pointed out several near-term headwinds to earnings next year, including a non-recurring gain on asset disposals and conservative expectations for other revenue that will reduce earnings by $0.39.
Now what
The lower guidance is a problem for a stock that is usually expensive. A consistent history of revenue and earnings growth has pushed the stock up to a high forward price-to-earnings ratio of 30.
Considering the temporary nature of the headwinds that are pressuring earnings guidance, and the company's recurring revenue from long-term service contracts, investors shouldn't be concerned over the stock's fall.
The greater risk for Jack Henry would be an economic recession. But over the long term, management believes it can continue to grow revenue between 7% and 8% per year with gradual improvement in operating margin.
