National Research Corporation (NRCI) has risen about 56% over the past year and consistently pays dividends. This provider of healthcare information services data reported a solid second quarter with a 26.7% positive earnings surprise. Robust top-line growth, a decent dividend yield and a share buyback program make this Zacks #2 Rank (Buy) a good pick for investors looking for both growth and income.
Second Quarter Results
On August 7, National Research reported second quarter fiscal 2012 earnings per share of 57 cents, way ahead of the Zacks Consensus Estimate of 45 cents and the year-ago earnings of 34 cents. The reported quarter included a one-time benefit of $620,000 due to favorable changes in state income tax law.
Revenues rose 13% year over year to $20.6 million, driven by market share growth and vertical growth in the existing client base. Moreover, on the back of an 18% growth in net new sales (to $6 million) and favorable client contract renewals, the total contract value of National Research stood at $89.2 million at the end of the second quarter.
Adjusted operating income increased 26.9% year over year to $6.4 million, resulting in a 350 basis point expansion in operating margin to 31.2%. Margin expansion was unimpeded by the 18.9% rise in direct expenses to $8.6 million, while selling, general and administrative expenses dropped 7% to $5.6 million.
Earnings Estimates Inch Up
Following a strong second quarter, the Zacks Consensus Estimate for fiscal 2012 increased almost 3.0% over the past 30 days to $2.07, representing year-over-year growth of 22.5%. Estimates have moved up for the following fiscal year as well, though nominally. The Zacks Consensus Estimate for fiscal 2013 has increased 0.4% to $2.38, representing year-over-year growth of approximately 15.0%.
Enhancing Shareholder Value
In February 2012, National Research hiked its quarterly dividend by 18% to 26 cents per share, representing a decent yield of 2.1%. Since the company initiated its dividend in March 2005 with 8 cents per share, dividends have grown at a compound annual growth rate of 18.0%. The company’s dividend payout ratio has also gone up from 49.0% in fiscal 2007 to approximately 52.5% in the current fiscal year.
In February 2006, the Board of Directors of National Research authorized the repurchase of 750,000 shares of common stock. As of June 30, 2012, the company was left with authorization to repurchase 206,597 shares under the program.
Reasonable Valuation
The valuation of National Research looks stretched compared to its peers by some metrics. The company is trading at a price-to-book (P/B) of 5.57x, a considerable premium to the peer group average of 3.37x. Valuation looks stretched with respect to the price-to-sales (P/S) ratio as well. The P/S ratio of the company stood at 4.21, a hefty premium to the peer group average of 0.33. However, valuation looks attractive with respect to return on equity (ROE) and return on assets (ROA). The company enjoys an ROE of 23.7% and an ROA of 13.2%, higher than the respective peer group averages of 12.1% and 6%.
Chart Reflects Strength
The stock has been consistently trading above its 200-day moving average since November 30, 2011. Barring occasional pullbacks, the stock has been above its 50-day moving average since the end of last year. The stock reached its 52-week high of $53.00 on June 29, 2012. National Research, with a market capitalization of $341 million, has also outperformed the S&P 500 Index over the past year. The one-year return for the stock is roughly 55.94% compared to a 26.22% return from the S&P 500 index.
Headquartered in Lincoln, Nebraska, National Research Corporation provides performance measurement and improvement services, healthcare analytics and governance education to the healthcare industry in the US and Canada. The company’s services encompass data collection, healthcare analytics, best practice identification and effective delivery of value-added business intelligence that enables its client base to improve performance across key business metrics. National Research addresses the healthcare industry’s growing need to measure and improve performance across the broad and rapidly changing continuum of healthcare service delivery.
