Green Dot: Strong Sell - Analyst Blog

On Mar 12, Zacks Investment Research downgraded Green Dot Corporation GDOT to a Zacks Rank #5 (Strong Sell) on account of its weak fourth-quarter 2013 results.

Why the Downgrade?

Green Dot witnessed downward estimate revisions following weak fourth-quarter results reported on Jan 30, 2014. The results clocked a substantial negative surprise of 56.3%. With this, the company delivered negative earnings surprises in two of its last four reported quarters with an average miss of 16.6%.

Moreover, shares of this life insurer lost nearly 20.7% since the company reported disappointing fourth-quarter results. Given its current quarter Earnings ESP of -3.9%, we feel the company is slated for difficult times going ahead.

Green Dot reported fourth-quarter net operating income per share of 7 cents. Results plunged from the year-ago quarter earnings of 24 cents and also missed the Zacks Consensus Estimate of 16 cents significantly.

The underperformance by Green Dot was largely due to rising expenses at the company. During the fourth quarter of 2013, total expenses of Green Dot scaled up 15.5% year over year. The increase came on the back of higher sales and marketing, processing and other general and administrative expenses

Green Dot has recently made large investments in the form of several big-scale growth initiatives including new distribution, which is yet to show any desired positive results. However, the company believes these initiatives will be accretive in the long run and are optimistic about healthy operational results going forward.

Green Dot is witnessing weak earnings estimate revisions since it reported its last quarterly results. Over the last 60 days, the Zacks Consensus Estimate for 2014 moved south by 18.1% to $1.04 per share as all the 5 estimates were revised downward. Likewise, the estimate for 2015 decreased 12.2% to $1.22 over the same period.

Other Insurers Worth a Look

We prefer to avoid Green Dot for the time being. However, investors interested in the business services sector may consider better-ranked stocks like Factset Research Systems Inc. FDS, Global Payments Inc. GPN and VeriFone Systems, Inc. PAY. All these stocks carry a Zacks Rank #2 (Buy).