Would You Buy This Stock?
The Dynamic Wealth Report
June 3, 2010
Back in late 2008, I was reading through the Wall Street Journal. I came
across an interesting article about computer hackers and credit cards. It highlighted how hackers broke into a highly secure computer system.
The computer system wasn’t some e-commerce website or government defense
contractor. It was the system of one of the largest credit card payment
processors in the world.
Your credit card information may have even been stolen!
The hacking incident caused untold millions of
dollars of damage. It also ruined the reputation of an otherwise solid
company.
The company targeted by hackers was Heartland Payment Systems (HPY).
And the hackers' motive was greed – pure and simple.
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Ever since the attack I’ve kept my eye on the company. Every once in a
while I’d look at their stock chart or browse through recent news
items. I was never sure if it was a good time to scoop up this stock or
not.
Well, today I have an answer… but before we get to that, let me tell you
about their business.
When I first started researching Heartland I was shocked at how simple
(and profitable) their business is. They simply process bank card
transactions.
That’s it… pure and simple.
If you’re like most Americans, you use a credit card to buy stuff at the
store. Maybe its groceries… maybe its shoes. When you pay for the
purchase, you hand over a credit card. The salesperson swipes your
credit card through an electronic reader. The reader then sends your
credit card information directly to the payment processor.
The processor does all the work.
They verify your card is legitimate. They communicate with the bank that
issued your card to obtain authorization. They give the go-ahead to the
store and then transfer the money from one account to another.
It all happens in the blink of an eye. And best of all, Heartland gets to
charge a fee… on every transaction.
Credit card fees aren’t cheap… just ask anyone who owns a small
business. You’ll be shocked at just how much companies like Heartland
charge. They can charge an arm and a leg just for the privilege of
processing credit cards and collecting money.
What’s amazing is Heartland takes very little risk.
As long as the card is legitimate, and the bank authorizes the charge,
Heartland collects their fee. They’re not responsible for delivering
goods or collecting payments from cardholders. That’s for other
companies to worry about.
Like I said the business is phenomenal… and a huge cash cow.
In 2006 they posted revenue of just over $1.0 billion and net income of
more than $28 million. In 2009 their numbers were even better. Revenue
was over $1.6 billion (a 60% increase), and adjusted net income was just
over $29 million.
Remember, throughout most of 2009, the economy was in a recession, and
spending was down. So in my mind posting any kind of net income was a
big win!
Now, you might be wondering why I gave you an “adjusted income” number
for 2009.
Remember, in 2008 they ran into a problem. Criminals hacked into their
computer system and captured a huge amount of information. Very valuable
credit card information.
Heartland had to take a huge charge to pay fines, fix the breach, and
convince customers they were once again safe. They set aside millions of
dollars to pay fines and deal with lawsuits and other court costs.
Heartland had egg on their face… and they needed to fix this customer
relations nightmare quickly.
Now here we are a few years later. Heartland has fixed the hacker
breach. They settled a few court cases and had a few others dismissed. They paid some huge fines to other credit card companies, and they are
once again focused on growing the business.
Despite the setback, Heartland has shown strength and fortitude. They’ve
endured a crisis that would have brought many other companies to their
knees.
Given the rebound in economic activity, and growing consumer
confidence, I’m expecting Heartland to continue growing well into 2011. The cash cow should be giving milk again! And in my mind
now’s
a perfect time to buy some Heartland stock.
The stock is trading around $16 today and is in a steady uptrend. Grab
hold of some of this stock… before long it should be approaching its old
highs of over $32 a share!
Semiconductor stocks are rallying today on an improved outlook for 2010. Gartner raised its growth forecast from 19.9% to 27%. One way to play this trend is with an ETF
on the semiconductor industry like PowerShares Dynamic Semiconductors
(PSI). The ETF is up 1.4% on the news.
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