Wachovia downgraded CheckFree (CKFR) to market perform from outperform.
Analyst David Trossman says the company's financial model faces tougher comparisons in fiscal year 2004 (ending June), notably with Bank of America (BAC) and its software business; upside EPS surprises are less likely. He feels increasingly uncomfortable with the high end of Street fiscal year 2004 EPS estimate range of $1.00 to $1.05, which compares with his 93 cents estimate.
Trossman estimates 15% to 20% of operating profit and cash flow comes from revenue guarantees from First Data (FDC) and Microsoft (MSFT) that could be substantially reduced in fiscal year 2006. He notes that CheckFree has exceeded his valuation range of $22 to $27. He sees fourth-quarter EPS of 22 cents.