Thank goodness, it's finally over. Last year was one of lousy press and mediocre numbers for data collator ChoicePoint (NYSE:CPS), which got caught up in the growing wave of ID thefts and suffered through public chastisement, congressional inquiries, and regulatory fines. But hopefully, all that's behind it now, and better things are to come in 2006. We'll get the new year's first update when the company reports Q1 2006 earnings numbers tomorrow morning.
What analysts say:
- Buy, sell, or waffle? As ChoicePoint emerges from last year's troubles, it's getting even more analyst coverage. Two analysts jumped on board over the last three months, bringing the ratings tally to 13 buys and five holds -- no sells at all.
- Revenues. The analysts are looking for ChoicePoint to report 7% sales growth to $270.1 million.
- Earnings. Meanwhile, profits are believed to have grown only 2% year over year, to $0.45 per share.
What management says:
ChoicePoint management isn't a talkative bunch (or maybe it's just, wisely, keeping a low profile until the bad press has blown over.) In any case, what little it has said publicly over the last three months has been pretty good. Most importantly, at the end of January the company said it had ended its "poison pill" takeover defense plan. That's a move shareholders should approve of, because it makes things easier for potential acquirers to buy shareholders out at a premium if they see value in the shares.
Meanwhile, ChoicePoint itself is seeing plenty of value in its shares. The firm increased its share buyback plan by 50%, to $375 million, and reported it has already bought back more than $125 million worth of its own stock.
What management does:
Over the last year, ChoicePoint's gross margins have slid a full 100 basis points. Adding to the firm's profits troubles are the costs of compensating the victims of last year's data thefts, and higher legal and other expenses associated with improving security to prevent future breaches. These added costs weighed even more heavily on the firm's operating and net margins.
|
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 | |
|---|---|---|---|---|---|---|
|
Gross |
45.1% |
46.4% |
47.3% |
46.9% |
46.7% |
46.3% |
|
Op. |
25.9% |
26.3% |
26.4% |
26.1% |
25.6% |
25.1% |
|
Net |
15.3% |
16.1% |
15.8% |
15.2% |
14.7% |
13.3% |
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing 12 months performance for the quarters ended in the named months.
One Fool says:
Let's take another look at ChoicePoint's buyback plan, shall we? The firm's shares are already outperforming the S&P 500 over the last 52 weeks, which right from the get-go suggests they're not likely grossly undervalued.
Looking at the recent numbers, I have the firm priced at $3.9 billion and generating $223 million in free cash flow over the last year. That gives ChoicePoint a price-to-free cash flow ratio of 17 or thereabouts, which, when weighed against either its projected earnings growth rate (15%) or its return on equity (14%), makes the firm look at best fairly priced, and actually a bit overvalued, to this Fool. The company isn't grossly overpaying for its stock, but unless the business improves substantially this year, I'll be wondering whether instituting a dividend might be a better use for the funds.
Competitors:
- Acxiom (NASDAQ:ACXM)
- Automatic Data Processing (NYSE:ADP)
- Computer Sciences (NYSE:CSC)
- Dun & Bradstreet (NYSE:DNB)
- First Advantage (NASDAQ:FADV)
- Harte -Hanks (NYSE:HHS)
Fool contributor Rich Smith does not own shares of any company named above.
