One of the best quarters for the financial markets in a decade was even better for public companies that make their business in the nonprofits sector. The stock market rebounded during the middle of this year after a historically brutal 2008. The first quarter of 2009 was still a bit unkind, with most major stock indices down, including a 13-percent drop in the Dow Jones Industrial Average.
About a dozen public companies that work with nonprofits are public companies trading mainly on the New York Stock Exchange or NASDAQ. Some focus solely on the marketplace while for others nonprofits make up only a fraction of their business.
Of the companies recently examined by The NonProfit Times, only Oracle and Salesforce.com saw their stocks stay up during the first quarter, and that was barely. A turnaround started in the second quarter and continued into the third as most economists announced the end of the recession was near.
Through the third quarter of 2009, Harte-Hanks (HHS) was the leader in the NPT stock index, with its stock driving up 122 percent, to $13.83, from its 2008 close of $6.24 per share. The San Antonio, Texas-based direct marketing company was downgraded from market perform to underperform by BMO Capital Markets in September.
Most all companies enjoyed a huge rebound during the second quarter, outpacing the Dow’s 11 percent gain and in some cases even the NASDAQ’s 20-percent jump. Alliance Data Systems (ADS) was the smallest gainer, at 11.5 percent for the quarter. That trend continued for the third quarter, led by Harte-Hanks’ 50 percent spike, followed closely by Alliance Data, Blackbaud (BLKB) and Salesforce.com (CRM), all of which gained about 49 percent. In the third quarter, only Oracle (ORCL) posted a loss, down 2.5 percent, and its 17 percent gain for the year was the lowest among the 11 stocks, except for Acxiom, which was down just a little more.
If the 11 companies were compiled as an index, they would have outgained the market’s major indexes through September. After a slow first quarter, with a loss of 10 percent, the “nonprofit index” rebounded nicely, gaining back 25 percent in the second quarter and another 31 percent in the third quarter, for a 47-percent spike with three months remaining in 2009. The Dow and NASDAQ were both up after falling first quarters, finishing the third quarter up 11 percent and 35 percent, respectively, for the year.
Omaha, Neb.-based infoGroup had a busy 2009, first merging Direct Media and Millard this past summer and in October announcing the creation of a new division, infoGroup Nonprofit. The new division combines Triplex, a database firm acquired in 2004, and May Development Services, a creative and list company acquired as part of Direct Media in January 2008. In October, infoGroup, Inc., reached a tentative agreement with the Securities and Exchange Commission (SEC) to settle an investigation into the company’s spending. The move still required final approval of the SEC.
The firm settled a shareholder lawsuit last year that resulted in limits on spending and the removal of founder Vin Gupta as CEO, who remained on the board. He pledged to reimburse the company $9 million.
Blackbaud was included on Software Magazine’s Software 500 ranking of the world’s largest software and service providers, coming in at No. 133.
Blackbaud announced total revenue of almost $80 million for the third quarter, slightly more than what analysts had expected. In a conference call announcing the third-quarter earnings, President and CEO Marc Chardon said he expects revenue growth in the low to mid-teens when the economy improves.
“The biggest factor impacting our selling efforts though is not our competitive offering; it is rather the cautious reluctance of many, if not most, nonprofits to actually commit to a technology investment in this environment. As a result, we continue to plan to manage our business in a manner that does not assume any near term improvement in the macro environment,” he said.
“There are certain segments in the markets that continue to perform better than average, such as higher education and the enterprise segment generally. However, other verticals such as arts and cultural remain quite challenging, and the low and mid market continue to face greater head winds from a broader economic perspective,” Chardon said.
Analysts Sterling Auty of JP Morgan initiated coverage in Blackbaud in July, weeks after Jefferies and Co.’s Ross Macmillan downgraded the stock from buy to hold.
In a preview report of third quarter earnings on Blackbaud issued in October, Jefferies and Co. called Internet-centric products (such as Blackbaud’s NetCommunity and Sphere) and eCRM a “bright spot amidst weak software sales to nonprofits,” while “subscriptions and high maintenance provides resiliency.”
The firm issued a price target of $23 per share on the software company, adding that it has not had to “resort to headcount cuts” which are unlikely at this point. BLKB closed the third quarter trading at $23.20 a share, up almost 72 percent from its 2008 close of $13.50. MacMillan’s hold rating describes stocks that expect to provide a total return of 15 percent, plus or minus 10 percent, during the next 12 months.
ADS had been approaching a 52-week high, trading near $70, in mid-October before announcing that third-quarter profits fell by 29 percent. The company earned $45.8 million, or 83 cents per share, in the quarter, down from the $64.8 million, or 93 cents per share, a year earlier.
The Dallas-based marketing company, whose subsidiary Epsilon serves some nonprofits, blamed unfavorable foreign exchange rates, particularly the strength of the Canadian dollar versus the American dollar.
The day after 3Q earnings were announced, the stock price dropped about 10 percent, into the neighborhood of its 3Q close of $60. For all of 2009, the company expects $5.15 per share in profit, compared with an analyst prediction of $5.05 per share. For fiscal 2010, Alliance Data said it anticipates per-share profit of $6 per share, compared with $6.10 per share expected by Wall Street.
Christopher Brendel of St. Louis, Mo.-based Stifel Nicolaus initiated coverage on ADS in June, just as JP Morgan’s Reginald Smith downgraded the stock from overweight to neutral.
Omnicom (OMC) rebounded from a 13-percent loss in the first quarter to finish up 37 percent through September. Among the global marketing and advertising giant’s holdings are nonprofit marketing firms Russ Reid Company, Grizzard Communications Group, Changing Our World, Inc., SCA Direct, and Cone.
Analysts were active on OMC in the second half of the year when it was up 36 percent and 17 percent during the middle two quarters. RBC Capital Markets initiated coverage at outperform in July, which was followed by downgrade from outperform to market perform in September by BMO Capital Markets. Argus upgraded the New York City-based company from hold to buy in October.
This article is from NPT Weekly, a publication of The NonProfit Times.
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