Green Dot Still Has Room To Run, Analyst Upgrades

Following the beat-and-raise quarter of Green Dot Corporation GDOT, William Blair upgraded the stock from Market Perform to Outperform. If the recent momentum continues, Green Dot shares could trade at a higher multiple.

Reviewing the results, analysts Robert Napoli, Cristopher Kennedy and Brian Hogan noted that adjusted earnings per share of 55 cents exceeded the firm's estimate of 40 cents, premised on better-than-expected revenues and margins. Organic growth was 12 percent, faster than the previous quarter's 6 percent growth, the analysts added.

Revenues were up 28 percent year-over-year to $225.5 million, exceeding William Blair's estimate of $207 million, with the upside aided by core metrics such as active cards, gross dollar volume and transfers. The firm also noted that the company raised its 2017 revenue guidance.

See Also: What Is The 'Prepaid Card Rule,' And Why Is Congress Likely To Disapprove It?

Based on recent trends, the firm now believes the company is on its way to achieve year-over-year card growth by early 2018. Going by the management's commentary and results, the firm said the economics of new products, launched in the first half of 2016, were well above legacy products.

"We continue to believe improving customer mix and growth of direct deposits remains a large opportunity for Green Dot and look forward to increased disclosure and the potential impact to earnings," William Blair analysts said.

The firm also referred to 2018 earnings estimates of activist investor Harvest Capital Strategies, which calls for earnings of at least $2.60.

William Blair raised its 2017 earnings per share estimate from $1.94 to $2.09 and its 2018 estimate from $2.27 to $2.45. Including the benefit from UniRush, the firm expects 2017 revenue growth of 24 percent to $890 million, up from its previous estimate of $840 million.

Additionally, the firm also raised its 2017 and 2018 EBITDA estimates.

On valuation, analysts said, "We believe a 10-times multiple on our 2019 estimate is reasonable, which would drive a stock price of around $55 per share over the next 12 to 18 months."

At time of writing, shares of Green Dot were up 11.12 percent to $44.81.