ACI WORLDWIDE $22.54 (Nasdaq symbol ACIW; TSINetwork Rating: Speculative)(402-390-7600; www.tsainc.com; Shares outstanding: 117.8 million; Market cap: $2.7 billion; No dividends paid) makes software for processing transactions involving credit cards, debit cards, automated teller machines, point-of-sale terminals and interbank payments. The company’s products also help cut fraud.
In the three months ended June 30, 2015, ACI’s revenue rose 4.3% to $265.8 million from $254.8 million a year earlier. Earnings jumped to $30.0 million, or $0.26 a share, from $14.0 million, or $0.12. Cost cuts were the main reason for the higher profits.
ACI is benefiting from the introduction of technology for the shift to chip-and-PIN debit and credit cards, which sped up with the EMV (EuroPay, Master- Card and VISA) payment networks’ liability shift, which came into effect in the U.S. on October 1, 2015.
Card-related fraud is the main reason for the change. Despite law-enforcement agencies’ efforts, card fraud keeps rising, costing about $8.6 billion a year in the U.S. alone. That could increase to more than $10 billion in 2015, especially if the U.S. doesn’t make significant progress with chip-card adoption.
The liability shift refers to the fact that merchants will now be responsible for fraudulent transactions if they don’t upgrade their point-of-sale terminals to accept chip-and-PIN cards. Liability currently rests with financial institutions, such as banks and credit unions that issue credit or debit cards.
The shift toward increasingly complex payments is a plus for ACI, but the stock trades at a high 30.1 times the company’s forecast 2015 earnings of $0.75 a share.
ACI Worldwide is a hold.
ADOBE SYSTEMS INC. $86.13 (Nasdaq symbol ADBE; TSINetwork Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 498.8 million; Market cap: $43.3 billion; No dividends paid) makes software that lets computer users create, edit and share documents in the popular PDF format. Graphic designers also use its programs to create print publications and web pages.
In its fiscal 2015 second quarter, which ended August 28, 2015, Adobe earned $0.54 a share, up 92.9% from $0.28 a year earlier. Revenue jumped 21.1%, to a record $1.22 billion from $1.01 billion.
The company added 684,000 subscribers (net of cancellations) to its Creative Cloud photo-editing and desktop-publishing service. Creative Cloud now has 5.3 million users, up 89.8% from a year ago.
Revenue from its Marketing Cloud service, which helps advertisers make online ads more effective, rose 27.0% in the latest quarter.
The company spends a high 18% of its revenue on research, which helps it compete in its rapidly changing industry. However, the stock has gained 33% in the past year and now trades at an expensive 41.6 times the $2.07 a share Adobe will likely earn in all of fiscal 2015. Moreover, that earnings estimate could suffer if the U.S. dollar keeps strengthening; overseas customers supply more than 40% of the company’s revenue.
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