It's hard not to like Computershare Limited (ASX: CPU) with its better-than-expected first half result only adding fuel to its rocketing share price.
The stock is up another 1.1% at $17.60 ahead of the market close and has gained nearly 7% since it handed in its results on Valentine's Day.
However, Credit Suisse's love affair with the share registry services group is cooling even as management delivered results that resoundingly beat consensus expectations with revenue jumping 10.8% to $1.11 billion and earnings per share (EPS) increasing 17.4% to 30.22 cents.
The EPS number is close to 10% above consensus and is supported by a number of factors such as good organic growth, strong transactional volumes, its leverage to higher interest rates and savings from its cost-out program.
If that wasn't enough to win over sceptics, Computershare also upped its interim dividend by nearly 12% to 19 cents a share and upgraded its FY18 EPS growth guidance to 12.5% from 10% on a constant currency basis.
Credit Suisse is expecting better given the strong first half performance and has pencilled in a 14.5% increase in EPS. The increase is even greater in US dollars with EPS growth tipped at 17% given the currency tailwind.
But even after upgrading its earnings forecasts on the stock, the broker is struggling to justify its high flying share price, which has surged by over 30% in the past 12-months.
In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is barely 2% in the black and its peer Iress Ltd (ASX: IRE) is up 3%.
In spite of Credit Suisse's above consensus forecasts, the stock is trading on an estimated FY18 price-earnings multiple of nearly 22 times. That may not be overly expensive but it suggests that further upside will be hard to justify as just about all the good news is priced into the stock.
The broker has downgraded the stock to "neutral" from "outperform" with a price target of $17.60 a share.
What's more, the US corporate tax cut is unlikely do much for Computershare as management sees little benefit from the lower tax rate on earnings.
There is always the prospect of Computershare making an acquisition but its balance sheet looks a little too heavily geared with a net debt to equity ratio of close to 80%.
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