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.