Heartland Payment Systems, Inc. (HPY) is expected to see continued organic growth, better same-store-sales-driven growth trajectory and higher incremental margins as the economy improves and and HPY continues to invest in new products and verticals, says Brett Huff, Research Analyst at Stephens Inc.
“We think that there is upside to organic growth for [Heartland] as well. That’s driven really by three things for this company. One is increasing the number of sales staff. In this past quarter they increased their sales staff pretty dramatically by over 40 or 45 people. The second thing is the same-store-sales-driven growth trajectory, and that we think will get better over time. From the roughly 2% now, we think that will go up over time simply as the middle market economy gets better where these guys have a lot of their customers,” Huff said.
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Huff also points to HPY‘s cross sales as a driver for its organic growth, as the company is investing in new products and verticals such as payroll and school payment processing. He also sees margin expansion potential for the company, with incremental margins better than the industry average.
“They are running at a margin of about 20% or so on EBIT, and we think the incremental margins can be much higher. Again, this is an example of one of those fixed cost businesses where we think the incrementals are better than the averages, particularly as HPY scales and grows the number of transactions that it does…We think the incremental margins on that particular sales strategy where they own their own sales people and control that relationship with the merchant; we think those incremental margins are better than the industry average,” Huff said.