Blackhawk Gets Its Wings Clipped: Bank Of America Downgrades To Neutral, But Stock Flies Higher

Bank of America Merrill Lynch has downgraded shares of Blackhawk Network Holdings Inc HAWK from Buy to a Neutral rating on concerns over EMV conversions, which are taking longer than predicted. The firm thinks that it could impact the earnings both in the current year and next year.

Analysts David Chu and Sara Gubins slashed their EPS estimates from $1.55 to $1.47 for the year 2016 and to $1.85 for next year, which is lower than the consensus predictions of $1.89. As a result, the analysts have reduced their target price on the stock from $41 to $34. The comments come a day after the company disclosed the completion of its acquisition of Grass Roots, which the analyst did not take into consideration.

Related Link: CLSA Says Buy The Dip In Blackhawk Network

The brokerage pointed out that the company expects risks from EMV to be contained with most of the stores to be compliant by the third quarter end. However, the firm's channel checks suggest that a shift toward EMV was trending at slower rate than it expected. While some grocery chains adopted EMV fully, a big majority of transaction dollar volume are not compliant.

"The EMV mandate requires merchants to implement chip-enabled point-of-sale systems or accept liability of fraud (previously assumed by card networks/banks). Implementation delays have led to some of HAWK's partners taking action to limit open loop card fraud. Actions include pulling cards off shelves, cash/debit only purchases, & removal of high value products," the analysts said in a research note.

At last check, Blackhawk was up 1.54 percent at $31.63.

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