I have a love-hate relationship with The Masters golf tournament, which begins tomorrow. It’s beautiful to watch, but simply awful to listen to.
As for the beauty, Spring has usually come to central Georgia and the blooming dogwoods and azaleas are undeniably pretty. The Augusta National Golf Club course itself is easy on the eyes, with many stunning vistas and landmarks that visually say “The Masters.” The Hogan Bridge over Rae’s Creek at the 12th hole is one of my favorites.
But CBS’s announcing crew, while technically proficient, are unrelentingly pious and reverent. They sound like they’re narrating the installation of a Pope. Voices are perpetually hushed. Holes can’t even be referred to by their number – they have to be identified by name. As in “Firethorn” a.k.a. the 15th hole. C’mon man!
And don’t get me started on the music. You know – you’re already hearing it and cursing me, right now! You wonder who had to die so that the music they played at their wake could be repurposed for a golf tournament. Are the survivors getting royalties? A lifetime of free tickets? One would hope.
In short, The Masters is like a Victorian-era child: better to be seen, not heard.
What will be seen and heard in April, however, is earnings announcements, as Q1 earnings season gets underway. Starting with the traditional front-runner, Alcoa, the earnings will come hot and heavy starting the week of April 8. And just like The Masters, there are pre-tourney favorites. Here are three of our favorites, all of which we own in the Crabtree Technology model. Follow the link to see more of our holdings.
1. NIC Inc. (ticker: EGOV)
HQ: Olathe, KS
Market Cap: $1.2 billion
Q1 Earnings per Share estimate: $0.10.
Q1 Revenue estimate: $57.7 million.
Scheduled Earnings Announcement: After market close, Monday May 6, 2013
NIC runs the official state web portals for more than half of U.S. states. Nearly all of NIC’s business is “self-funded.” That is, instead of a state government paying NIC like any other contracted service provider, the state collects fees from transactions made across the web portal – for example, a driver’s license renewal, or the issuance of a fishing license. This low-impact revenue model, combined with NIC never having lost a state portal to a competitor, makes us big fans of the company, its business model and its shares.
NIC is a model of consistency when it comes to earnings announcements. We expect neither a big miss nor a big blow-out quarter, just a steady-as-she-goes type of performance, along with some progress toward winning new states such as Connecticut, North Carolina, Washington and Wisconsin. At a forward P/E of 38, NIC isn’t cheap. But high quality things always cost more. Just ask Augusta National members.
2. Stamps.com (ticker: STMP)
HQ: El Segundo, CA
Market Cap: $381 million
Q1 Earnings per Share estimate: $0.39.
Q1 Revenue estimate: $30.4 million.
Scheduled Earnings Announcement: After market close, Wednesday April 24, 2013
Stamps.com is the number one independent vendor of Internet-based postage. Customers subscribe to Stamps.com and gain access to postage and other shipping services that facilitate efficient bulk mailing. Although similar services are offered by both the United States Postal Service as well as competitors like Pitney Bowes (PBI), Stamps.com customers seem willing to pay about $21 per month for a better user experience. This might include, for example, its ability to natively integrate with Microsoft Word in order to use that program’s automated mail merge and envelope printing functionality.
Stamps.com went through an accelerated growth phase in 2011 that moderated a bit in 2012, when annual revenue growth decelerated to 10%. In fact, the $30.4 million in revenue that analysts expect for Q1 2013 will only represent 7% growth over the year-earlier quarter. So why stick with Stamps.com? A history of execution, 21% operating margins and 23% operating cash flow margins. Plus they have less than 3% of a $43 billion addressable market. And they have been buying back their stock regularly.
Our experience with Stamps.com’s quarterly announcements is that they almost never just “mail it in.” We’re anticipating solid results on the 24th.
3. Cerner Corp. (ticker: CERN)
HQ: North Kansas City, MO
Market Cap: $16.1 billion
Q1 Earnings per Share estimate: $0.63.
Q1 Revenue estimate: $708.5 million.
Scheduled Earnings Announcement: After market close, Thursday April 25, 2013
Cerner is the largest independent, publicly-traded vendor of Health Care Information Technology solutions. These solutions include hardware, software (including electronic health record database technology) and the service and training necessary for clients to utilize these tools effectively.
Cerner competes against a variety of players, ranging from privately-held Epic (based in Madison, WI) to smaller purely SaaS-based vendors like Athenahealth (ATHN). But our research supports our belief that Cerner is holding on to and in some segments taking market share simply through higher-touch service. Supporting this is that the consensus earnings estimate for the March quarter has been slowly rising throughout the quarter and is now at $0.63/share.
Cerner is doing everything we like: generating cash, consistently beating Street estimates and holding on to (and probably taking) market share. If Cerner was a professional golfer, it would probably look good in a green jacket.
The investments discussed are held in client accounts as of March 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
