Bill-payer extraordinaire CheckFree (NASDAQ:CKFR) reports earnings after close of trading on Tuesday. And thanks to Friday's sell-off, you can pick up the shares 2.5% cheaper than they would have run you last Thursday. (Not that they're cheap even at this price -- see below.)

Wall Street Wisdom:

  • General consensus. Of the 20 analysts who follow CheckFree, 10 rate the company a "buy" and nine vote "hold." Only one brave soul rates the company a "sell."
  • Revenues. Analysts will be looking for CheckFree to report $212 million in revenue tomorrow, a 14% increase over the year-ago quarter.
  • Earnings. They predict that CheckFree will report $0.41 in profits per share, a 14% increase over the year-ago quarter.

Could a surprise be in the offing? Don't be surprised if CheckFree does surprise. The company has beaten consensus estimates in each of the past four quarters. Moreover, as you'll see from the data below, the company is just getting stronger over time. I think analysts are lowballing CheckFree here. If the company hits its revenue target, it's much more likely to turn in better-than-expected earnings growth than worse.

Margin watch:
To give you a better idea of the context for tomorrow's earnings and how they play into the company's long-term trends, watch how its margins develop on a "rolling basis." Here's how CheckFree's margins have been shaping up over the past six consecutive "trailing-12-month" periods.

Mrg.

6/04

9/04

12/04

3/05

6/05

9/05

Grs.

59.6%

59.4%

59.8%

60.2%

60.8%

62.0%

Op.

3.3%

5.6%

7.3%

8.6%

9.3%

12.8%

Net

1.7%

3.6%

5.6%

6.5%

6.2%

8.4%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

The more time that goes by and the bigger its base of business gets, the stronger CheckFree's margins are becoming. This company is truly a force to be reckoned with.

Valuation:
Just looking at CheckFree's trailing P/E of 62 gives me vertigo. But on closer examination, the price-to-free cash flow ratio of 22 looks downright reasonable -- if analysts' predictions of 19% annual long-term earnings growth prove correct.

Competitors:
CheckFree is a leader in the bill-payment space, but it's not undisputed. Three high-quality competitors bear watching: MasterCard (soon to go public), Online Resources (NASDAQ:ORCC), and Metavante, a division of Marshall & Ilsley (NYSE:MI).

Fool contributor Rich Smith does not own shares in any company named above.