Wells Fargo Upgrades Heartland Payment Systems To Outperform

Wells Fargo is upgrading Heartland Payment Systems HPY to Outperform. It is also raising its 3-5 yr estimated EPS growth rate to 20% from 15%. Performing a fairly straightforward profitability analysis by segment, Wells Fargo believes even if NWS were to experience operating losses of several million dollars in 2011 and 2012, HPY would be able to achieve above consensus 2012 EPS est of $1.25 by returning to an operating margin of ~19% in its legacy businesses. HPY achieved an operating margin of 20%+ in 2007, so Wells thinks a 19% margin in 2012 for legacy HPY is possible given that it estimates legacy processing volume will be ~45% higher in 2012 than 2007 while the increase in merchants and relationship managers will be much lower; and HPY's net revenue yield on SME processing volume may actually be a bit higher in 2012 than in 2007. HPY is trading higher at $16.28