(Repeats to fix link)
By Brenton Cordeiro
BANGALORE, March 16 Online Resources Corp
may no longer be looking to sell itself or have a very
bright 2011 to look forward to, yet some are placing long-term
bets on the management's aggressive plans to boost
The financial technology provider, which is seeing a
turnaround under Chief Executive Joseph Cowan, caught the eyes
of potential acquirers but a recent rally in the shares of the
company may have deterred a deal from materializing.
Nearly a third of the company's market value eroded on
Wednesday, a day after it pulled the plug on a possible sale and
forecast a disappointing year ahead.
Is the sell-off overdone? Or will competition squeeze its
turnaround efforts? Here are some views:
TOUGH ROAD AHEAD
With the performance of financial institutions improving,
and their growing IT budgets, Online Resources will face stiff
competition from larger players such as Fidelity National
Information Services , Fiserv and Jack Henry &
"Competition from large core processors and payments
companies is intensifying and Online Resources' execution in the
market has historically been sub-par," Mayank Tandon of Signal
The company's uninspiring 2011 forecast of flat revenue
growth doesn't help matters, with analysts expecting customer
losses to be a major issue.
"Online Resources may be an even more challenging turnaround
than previously expected," Robert Napoli of Piper Jaffray, who
has an "underweight" rating on the company, said.
The company trades at about 24.5 times its forward earnings,
compared with a median of 15.2 for the broader sector.
The Chantilly, Virginia-based company's shares received a
boost over the last year, rising over 50 percent, amid
speculation that the company may be bought.
"With (a deal) off the table, we are stepping to the
sidelines," Janney's Thomas McCrohan said.
He lowered his fair value for the company's stock to $4 a
share from $8 a share on Wednesday.
PATIENCE TO PAY OFF
Cowan, who took over the reins of the company in June,
introduced a long-term strategic growth plan that includes
enhancing the company's management team and investing in
technology and products.
He has set ambitious targets too, forecasting top line
growth in the mid-teens and an adjusted EBITDA margin in the
mid-twenty range by 2013.
"We are forecasting 2011 to be a 'kitchen sink' year and
expect measurable improvement to follow in 2012," said DA
Davidson's John Kraft, who rates the stock a "buy."
The company is setting up a development center in India,
aiming to reduce IT and data center costs by two-thirds in 2-3
years, and IT headcount costs by 35 percent by the end of 2013.
The company has an aggressive growth plan outlined and
investors with patience should be rewarded, analysts said.
"Despite these failed talks, we continue to believe the
company is in the early stages of turnaround that will culminate
in a sale," Kraft said.
(Editing by Saumyadeb Chakrabarty)