Quick Research Update
Shares in EBIX Inc. have now gained over 88% since our recommendation just one year ago and are up 15% since our last update on Modest Money.
What continues to drive this stock? Check out a couple excerpts from our latest quick update to find out!
Ebix Inc. (EBIX:NASDAQ)
Industry: Technology – Software
Recommended: July 2015
Recommendation Price: $29.36
Current Price: $55.98
Market Cap: $1.83 Billion
Shares Outstanding: 33,678,000
Fully Diluted: 33,931,000
Ebix is a leading international supplier of software and e-commerce solutions to the insurance and financial industries. The company provides a series of application software products for clients ranging from carrier systems, agency systems, and exchanges to custom software development for all entities involved in the insurance and financial industries.
Ebix’s goal is to be the leading backend powerhouse of insurance transactions around the world. The company’s technology vision is to facilitate convergence of all insurance channels, processes and entities in a manner such that data can seamlessly flow once a data entry has been made. With a recurring revenue base of approximately 80%, Ebix strives to work collaboratively with clients to develop innovative technology strategies and solutions that address specific business challenges.
The company has been in KeyStone’s coverage since July 2015 when the stock traded below the $30 level. We are happy to report the stock is today trading in the $56.00 range after reporting 2016 second-quarter earnings. Given the strong move, it is a prudent time to update readers on our current rating.
Despite the share price nearly doubling since our original recommendation, we remain excited by the momentum EBIX has generated in its business both in terms of the top line and operating margins. Revenue in Q2 2016 increased 12% from a year ago to $72.6 million. On a constant currency basis, Ebix’s second-quarter 2016 revenue increased 14% year over year to $73.8 million as compared to $64.7 million in Q2 of 2015.
Q2 2016 diluted earnings per share increased 29% to $0.70, as compared to $0.54 in the second quarter of 2015.
We are pleased with the fact that the company continues to attract a top-line revenue growth and cash flow from operating activities and operating income, along with operating margins consistently in the 30% to 35% range. In our viewpoint, one of the true measures of enterprise’s fundamental strengths is its ability to generate sustainable cash flows from these operating activities.
EBIX makes a takeover bid for Patriot National (NYSE: PN) – Today, Patriot reported that its own Special Committe, which is comprised of independent directors, is working collaboratively with Ebix, Inc. to explore the possible combination of the two businesses, while continuing to explore other available strategic opportunities for Patriot National to maximize value for shareholders. Ebix is expected to complete its due diligence by August 31, 2016, as the Special Committee nears the conclusion of its evaluation of the prospects it has received and expects to make a recommendation to the Board of Directors soon on whether Patriot should enter into any transaction or pursue another alternative. As announced August 1, 2016, Ebix made an improved offer to acquire 100% of the outstanding stock of the Company.
Ebix management continues to be excited about the possibilities of this prospective merger. It would create the world’s largest insurance services provider of straight-through processing with a wide repertoire of end-to-end services under one roof while complementing the relative strengths of both parties in terms of products, services and client base. Ebix sees substantial synergies, economies of scale and expanded growth potential for the combined business.
Management believes that the company’s offshore and technology capabilities could serve to improve Patriot National’s operating income substantially, making it possibly a 30% operating margin business. That could result in delivering a highly accretive transaction for both sides in the short term.
Looking forward, the outlook for Ebix continues to be positive with another year of growth expected in 2016 and compelling long-term opportunities. The stock is up over 88% since our initial recommendation in July 2015. Although this has made the valuation more expensive relative to earnings, the appreciation in the share price has largely been driven by earnings growth and the achievement of important milestones. The stock is not especially cheap at 20 times estimated 2016 earnings; however, relative to comparable companies in the U.S. market, we continue to view Ebix as reasonably valued when taking into account the company’s long track record of profitability and growth, recurring revenue model and positive outlook.
We have shifted our Short-Term Rating (traders with a time horizon of 6-months or less): HOLD. Our Long-Term Rating (investors with a time horizon of 1-5 year+): BUY. We would potentially look to upgrade the stock rating further if the opportunity were to arise to purchase the stock in the 15 to 17 times forward earnings range.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.