Online bill payment facilitator CheckFree (NASDAQ:CKFR) reports fiscal Q2 2007 earnings results tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Twenty analysts follow CheckFree. Fourteen of them rate the stock a buy, and the other six say hold.
  • Revenues. Wall Street will be looking for an 8% rise in revenues to $232.9 million.
  • Earnings. Profits, however, are expected to fall 5% to $0.42 per share.

What management says:
The big news at CheckFree this quarter was its acquisition of complementary payment technology firm Carreker (NASDAQ:CANI) for $206 million (or just $170 million net of cash). Read all about it here.

What management does:
From all I've heard, the long-term trend in billpay is heading toward lower and lower margins at the gross level, and CheckFree's margin table bears this out. Rolling gross margins continue to contract -- and with sales rising 8% year over year in the last six months, while cost of services rose 17%, no other outcome was possible. Still, the firm's depreciation and amortization charges have fallen drastically in recent quarters -- allowing operating and net margins to rise strongly.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

60.4%

61.6%

62.5%

61.8%

61.0%

60.3%

Operating

9.2%

12.7%

16.2%

18.6%

20.8%

21.4%

Net

6.2%

8.5%

10.6%

12.7%

14.5%

14.8%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Carreker's isn't the only stock CheckFree wants to buy. Just days after releasing its fiscal Q1 results back in October, CheckFree announced a share-buyback program authorizing the repurchase of as much as $100 million worth of its own stock through Aug. 1, 2007. In the three months since that announcement was made, CheckFree's share price has only closed beneath its price on that date five times. That suggests to this Fool that management was serious about buying back shares, and the share price was buoyed as a result.

And speaking of the share price on the date of the announcement, here's a bit of trivia: At the close of trading last week, the shares were the exact same price as they were on the date of the buyback announcement -- to the penny. I expect we'll be hearing tomorrow that however many shares CheckFree has managed to collect over the last three months, it's not done buying yet. If management liked the $38.76 price tag then, they should still like it now.

That said, it will be interesting to see whether the company is willing to take on debt to fund its buyback program. Even with its $210 million in net cash as of three months ago, the firm's quarterly free cash flow of roughly $40 million means that the Carreker purchase will drain (or already has drained) CheckFree's bank account almost dry.

Competitors:

  • DST Systems (NYSE:DST)
  • eBay (NASDAQ:EBAY)
  • Moneygram (NYSE:MGI)
  • Online Resources (NASDAQ:ORCC)
  • Western Union (NYSE:WU)

CheckFree isn't the only firm buying in the billpay space. Read about other recent consolidations in:

Western Union is a Motley Fool Inside Value recommendation. eBay is a Stock Advisor recommendation. Try any one of our investing services free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.