Deluxe Corporation (DLX) has risen 59% so far this year; the company is a provider of trusted technology-enabled solutions to millions of small businesses and over 4,000 financial institutions comprised of banks, credit unions and other financial services companies in the U.S. and Canada, explains Taesik Yoon, editor of Forbes Investor.
Its extensive range of products and services encompass everything from website development and hosting, email marketing, social media, search engine optimization, payroll services and customized checks and forms for small businesses, to industry-leading programs in data analytics, customer acquisition and treasury management, fraud prevention, and checks for financial institutions.
The stock looked very attractive entering the year, having greatly underperformed in 2020 and trading at a ridiculously low forward P/E of just over 6 times its consensus earnings expectations for this year of $4.96 per share at the time.
And while DLX was hit much harder by COVID-19 due to its significant exposure to the small and mid-sized business market — which really took it on the chin during the pandemic-driven lockdowns—and the amount of leverage the company employs, DLX has done a fantastic job of managing through this major economic headwind.
This is clear from the much better-than-expected post-pandemic profit performance and free cash flow production that it has turned in, as well as the significant amount of new business won during this span.
And with this order activity likely to have DLX exiting 2020 with a strong backlog of business, I was optimistic that the company’s operational outperformance would continue in the new year and finally have its stock moving meaningfully higher. With the stock up 60% so far this year, I’d say that’s clearly been the case.
Yet even with this surge, DLX’s stock trades at a forward P/E in the single digits. This despite the fact that its post-pandemic operating performance has continued to impress.
In fact, its start to 2021 was so good that the company preannounced Q1 adjusted earnings that were well above what analysts were expecting in April and then came in comfortably above even this level when it formally reported these quarterly results the following month.
The recent acquisition of First American Payment Systems adds a highly profitable business that doubles the size of DLX’s own Payments segment and derives nearly all its revenues from recurring sources, positioning the company to enter the attractive merchant services market as a scaled player.
This accelerates its goal of becoming a leading payments technology firm, and I expect it to continue delivering favorable operating results good enough to drive its shares meaningfully higher in the back half of the year as well. Thus, I continue to see DLX as one of the better bargains in the market today.
