ACI Worldwide Inc.ACIW

Morningstar Rating

Stock Research and Analysis

by Brett Horn

We think ACI Worldwide's core business is fundamentally attractive. The firm has struggled recently because of some transitory issues and management missteps, but we believe the company might be close to turning a corner.

ACI's main product, accounting for almost half of revenue, is BASE24, a suite of electronic payment software used primarily by banks and payment processors that prefer to license it from ACI instead of investing to develop their own. Read more

Bulls Say

ACI's alliance with IBM should allow the company to reduce its cost base materially.

ACI has established relationships with 100 of the world's top 500 banks, and it typically signs multiyear contracts.

ACI's profitability could reset at a materially higher level soon as the firm works through its accounting issues and shifts away from renewing contracts early. Read more

Bears Say

ACI has few growth opportunities domestically in its most profitable business and risks losing business as the big banks consolidate.

Management's penchant for value-destroying acquisitions presents a wild card that offsets the underlying profitability of the business.

The variety of issues the company has faced during the last few years make it difficult to separate the drivers behind its poor performance and assess the future profitability of the business. Read more

Strategy

Management has attempted to expand the company's product line through acquisitions in recent years, with poor results. We do like, however, that management has steered the company away from renewing contracts early to pump up near-term results. Read more

Management

We think stewardship at ACI is fair on the whole. Phillip Heasley has held the CEO position since 2005, and though he has made some positive moves, we view the acquisition spree that followed his appointment negatively. We like that Heasley's bonus is tied mainly to free cash-flow goals, but we question the validity of the goals, as his total compensation increased to $3. Read more

Profile

ACI's primary product is BASE24, a line of software products that facilitate electronic payments. Its customer base is primarily large banks, processors, and large retailers. Read more

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