Deluxe beats estimates, shares gain on strong cash flow
Technology and payments company delivers 7% EPS beat, 75% free cash flow growth in fiscal 2025
Deluxe Corporation surpassed analyst expectations in its fourth quarter, driven by robust free cash flow generation and accelerating growth in its digital solutions business, even as the company offered conservative revenue guidance for the coming year.
The payments and marketing services company reported adjusted earnings per share of $0.96, beating the consensus estimate of $0.8975 by 7%, according to regulatory filings. Revenue reached $535.3 million, exceeding Wall Street projections of $526.5 million by 1.7%.
The standout performance came in cash generation, with full-year free cash flow surging 75% to $175.3 million. The company simultaneously reduced its net debt by $76.2 million, strengthening its balance sheet during the fiscal year. These capital allocation achievements underscore Deluxe's ongoing transition from its traditional print-based heritage to a technology-driven business model.
"Our strong fourth quarter and full-year results reflect the successful execution of our strategic pivot to higher-growth digital solutions," said Barry McCarthy, chief executive officer of Deluxe. The Data Solutions segment, which houses the company's fastest-growing digital offerings, expanded by 30.6% year-over-year, demonstrating the traction of Deluxe's cloud-based services and payment processing platforms.
Looking ahead to fiscal 2026, management projects earnings per share of $3.90 to $4.30, which would represent growth from 2025's $3.67. However, the company's revenue outlook of $2.11 billion to $2.175 billion is essentially flat compared to 2025's $2.133 billion, suggesting continued headwinds in legacy print operations that will offset digital gains.
Deluxe's shares, which have rallied significantly from a 52-week low of $13.04, currently trade at $23.90. The stock has climbed more than 83% over the past year, reflecting growing investor confidence in the company's transformation strategy. At current levels, shares trade at 13.4 times trailing earnings but just 5.7 times forward estimates, according to market data.
The company's dividend yield of 4.95% provides additional income appeal for investors, with Deluxe having paid dividends consistently through its restructuring efforts. Institutional investors own 89.3% of shares outstanding, indicating strong backing from professional money managers.
Analysts maintain a positive outlook on the shares, with an average target price of $28.67 representing potential upside of approximately 20% from current levels. The consensus rating remains balanced between buy and hold recommendations, as investors weigh the company's improving cash generation against modest revenue growth prospects.
Deluxe's strategic evolution mirrors broader industry trends as traditional print and check providers pivot toward digital payments, data analytics, and cloud-based services. The company's ability to generate substantial free cash flow while investing in this transition positions it to continue debt reduction and potentially return capital to shareholders through dividends or share repurchases.
The flat revenue guidance for 2026 highlights the challenges facing management as legacy print sales decline. However, the accelerating growth in Data Solutions and improved profitability metrics suggest the transformation is gaining momentum, potentially setting the stage for accelerated revenue growth in future years once digital contributions reach critical mass.