Deutsche Bank Raises Green Dot Price Target

Deutsche Bank raised its price target on Green Dot Corporation GDOT Monday from $21 to $24 and maintained a Hold rating.

Analyst Ashish Sabadra commented that a Wal-Mart Stores, Inc. WMT contract renewal appears likely “given the depth of GDOT’s relationship at WMT namely the launch of GoBank, expansion of prepaid products in late FY13, transition from GE bank to GDOT Bank for the MoneyCard product in early 2014, and renewal of the gift card contract for a multi-year term.”

Sabadra cautioned that “the [Wal-Mart] commission could be reset resulting in a drag on margins” and noted that “commissions increased from 22 percent to 26 percent in May 2013 and could potentially go up to 30 – 32 percent on renewal.”

“Revenues at WMT (52 percent of total revenues in 3Q14) declined low-teens in 2Q14 and 3Q14 from stocking issues, increased compliance controls, competition from AXP prepaid cards, lowering fees and use of free reload products, and discontinuation of MoneyPak,” according to the analyst note.

“Revenues at non-WMT locations were up high-30 percent Y/Y in 3Q14 driven by maturity of new locations rolled out in 4Q13. MoneyPak will be discontinued at the non-WMT retailers in early 2015 (replaced by “reload @ the Register”) which may lead to potential loss of brand power and further pricing pressure driven by increased competition from alternate reload network.”

Green Dot recently traded at $21.50, up 0.23 percent.