CheckFree Poised to Ride E-Commerce Wave
"All companies involved in the payment services area have seen a lift," said Jeff Baker, vice president of equity research for SunTrust Equitable Securities.
Despite the attention paid to brand-name Web companies, brick-and-mortars banks still wield substantial influence over online financial activity. A recent study by the Yankee Group found that 78 percent of consumers would want to pay bills online through a bank, and some Web watchers predict the portal of choice in the future will be a bank.
Poised to gain from that trust is electronic bill payment provider CheckFree. The company's deep relationship with banks makes it the supplier with the most promising stock outlook, according to Baker. Online activity surrounding financial information is the stickiest part of the Internet and it's the banks' business to lose, he said.
"CheckFree will be a major player and major winner because one of the services banks have to offer is the ability to pay bills online," Baker said.
CheckFree, Atlanta, signed a deal last week to resell its E-Bill electronic billing and payment services to the nearly 7,000 clients of financial information firm Fiserv. Many of those clients are community banks whose introduction of online banking will push the larger regional and national banks to step up their online efforts, Baker said. To implement online banking, banks can either build a system internally like Citibank or outsource to a company like CheckFree.
Offering an Internet solution is a logical progression for CheckFree, which first came out with debit transfer and other payment services for banks in the early 1980s and has solidified those relationships over time. In addition to its history, CheckFree differs from Web startups like Transpoint, a joint venture of Microsoft and First Data Corp. formerly known as MSFDC, by accepting paper as well as electronic bill payment.
CheckFree's share price is up almost 20 percent in the last month and almost 100 percent in the last year. Since dropping to 5 3/4 in the October market slump, shares have jumped nearly 10-fold. Even with that rally, CheckFree is still well off its 52-week high of 69 1/8. Baker rates the company a strong buy and sees it reaching 60 1/2 in the next 12-18 months.
CyberCash, which recently introduced its InstaBuy Web site that enables one-click online shopping at 85 e-commerce sites, is up over 11 percent in the last month but is down slightly for the year. Open Market, which last week formed an alliance with Cisco Systems to distribute its e-commerce software to small and medium-sized businesses, is up 4 percent for the month but is also off slightly over the last year. Baker rates both companies as attractive long-term, which is one grade up from a hold.
OpenMarket also is positioned well for the future because of its extensive relationship with e-commerce sites, but CyberCash, despite revenue increases of 318 percent in the first quarter, will need to increase its roster of e-commerce sites before it can take advantage of increases in electronic payment, Baker said.
Acquisitions have caused Netscape and Fingerhut to drop off the DM News Portfolio. Database software firm Exchange Applications (EXAP) and risk management solutions firm Fair, Isaac & Co., have (FIC) taken their place.
Portfolio Value: If $1,000 had been invested in each of these companies at the beginning of the year -- for newly public companies when the stock first closed -- the value would be $117,419, an increase of 17.4 percent.