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Fiserv (FISV) Rides on Strategic Business Moves, Debt High
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Shares of Fiserv, Inc. have gained 17.2% on a year-to-date basis, significantly outperforming the industry it belongs to and the Zacks S&P 500 composite. While the industry rose 9.4% in the said time frame, Zacks S&P 500 composite declined 1.6%.
The company reported third-quarter 2018 adjusted earnings of 75 cents per share that missed the Zacks Consensus Estimate by 2 cents but rose on a year-over-year basis. Revenues of $1.41 billion lagged the consensus estimate by $19.4 million but came ahead of the year-ago figure by $12 million. Adjusted revenues of $1.35 billion increased $10 million on a year-over-year basis.
Fiserv has an impressive earnings surprise history, having outpaced estimates in three of the last four quarters. It delivered average trailing four-quarter positive earnings surprise of 1.5%. Over the past 60 days, the Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.2% upward.
What’s Driving Fiserv?
Acquisitions: A Key Growth Catalyst
Fiserv continues to expand its product portfolio and enhance its offerings with the help of strategic acquisitions. On Oct 31, Fiserv completed the acquisition of the debit-based assets of Elan Financial Services (a unit of U.S. Bancorp USB) for approximately $690 million. The deal includes the purchase of Elan’s debit card processing, ATM Managed Services and MoneyPass surcharge free network. It should boost Fiserv’s payments portfolio, widen its client base and provide new solutions to enhance the value proposition for its existing 3,000 debit solutions clients.
In 2017, Fiserv completed four acquisitions — Online Banking Solutions, Inc., PCLender, LLC, Dovetail Group Limited and Monitise plc. These buyouts helped the company to improve cash management and digital business banking solutions and transform payments infrastructure.
We believe that the company will continue to pursue accretive deals, which will boost its market share and customer base going forward.
Diversified Product Portfolio to Attract Customers
Fiserv looks well poised on the back of its diversified product portfolio. In third-quarter 2018, Fiserv’s DNA platform had eight clients and expects to reach nearly 30 by the end of 2018. In the first nine months of 2018, it had more than 20 clients. Zelle had 50 new clients in the last reported quarter. Zelle transactions grew more than 50% sequentially and more than 10 times year over year. While debit transactions recorded double-digit growth, Mobiliti ASP subscribers increased 23% in the last reported quarter to nearly 8 million.
Further, the company seems to be actively engaged in enhancing its services. In October 2018, Fiserv announced the launch of a flexible and interactive financial planning tool (which integrates with home office systems and streamlines manual processes) to help financial advisors operate more efficiently and collaborate with clients in their investment targets. In September 2018, the company announced the launch of Originate, a new suite of solutions aimed at helping banks and credit unions deliver enhanced digital account opening and loan origination to customers.
In August 2018, the company upgraded its unified managed account (UMA) services to help financial institutions and advisors operate more efficiently and announced the launch of two enhanced consumer authentication solutions, step-up authentication and identity verification to help call centers counter card fraud.
The diversified product portfolio has led to a steady flow of customers, considering the rapidly changing financial services industry and increasing demand for digital banking and payment services.
Risks
Fiserv’s balance sheet is highly leveraged. As of Sep 30, 2018, long-term debt was $4.82 billion while cash and cash equivalents were $673 million. Such a cash position implies that Fiserv needs to generate adequate amount of operating cash flow to service its debt. High debt may limit the company’s future expansion and worsen its risk profile.
Additionally, Fiserv’s policy of acquiring a large number of companies results in some integration risk. Acquisitions can negatively impact its balance sheet in the form of a high level of goodwill and intangible assets, which totaled $7.25 billion or 67.5% of the total assets as of Sep 30.
Some better-ranked stocks in the broader Zacks Business Services sector are Paychex, Inc (PAYX - Free Report) , WEX Inc (WEX - Free Report) and Automatic Data Processing Inc. (ADP - Free Report) , each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rates for Paychex, WEX and Automatic Data Processing are 8.5%, 15% and 12.5%, respectively.
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Fiserv (FISV) Rides on Strategic Business Moves, Debt High
Shares of Fiserv, Inc. have gained 17.2% on a year-to-date basis, significantly outperforming the industry it belongs to and the Zacks S&P 500 composite. While the industry rose 9.4% in the said time frame, Zacks S&P 500 composite declined 1.6%.
The company reported third-quarter 2018 adjusted earnings of 75 cents per share that missed the Zacks Consensus Estimate by 2 cents but rose on a year-over-year basis. Revenues of $1.41 billion lagged the consensus estimate by $19.4 million but came ahead of the year-ago figure by $12 million. Adjusted revenues of $1.35 billion increased $10 million on a year-over-year basis.
Fiserv has an impressive earnings surprise history, having outpaced estimates in three of the last four quarters. It delivered average trailing four-quarter positive earnings surprise of 1.5%. Over the past 60 days, the Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.2% upward.
What’s Driving Fiserv?
Acquisitions: A Key Growth Catalyst
Fiserv continues to expand its product portfolio and enhance its offerings with the help of strategic acquisitions. On Oct 31, Fiserv completed the acquisition of the debit-based assets of Elan Financial Services (a unit of U.S. Bancorp USB) for approximately $690 million. The deal includes the purchase of Elan’s debit card processing, ATM Managed Services and MoneyPass surcharge free network. It should boost Fiserv’s payments portfolio, widen its client base and provide new solutions to enhance the value proposition for its existing 3,000 debit solutions clients.
In 2017, Fiserv completed four acquisitions — Online Banking Solutions, Inc., PCLender, LLC, Dovetail Group Limited and Monitise plc. These buyouts helped the company to improve cash management and digital business banking solutions and transform payments infrastructure.
We believe that the company will continue to pursue accretive deals, which will boost its market share and customer base going forward.
Diversified Product Portfolio to Attract Customers
Fiserv looks well poised on the back of its diversified product portfolio. In third-quarter 2018, Fiserv’s DNA platform had eight clients and expects to reach nearly 30 by the end of 2018. In the first nine months of 2018, it had more than 20 clients. Zelle had 50 new clients in the last reported quarter. Zelle transactions grew more than 50% sequentially and more than 10 times year over year. While debit transactions recorded double-digit growth, Mobiliti ASP subscribers increased 23% in the last reported quarter to nearly 8 million.
Further, the company seems to be actively engaged in enhancing its services. In October 2018, Fiserv announced the launch of a flexible and interactive financial planning tool (which integrates with home office systems and streamlines manual processes) to help financial advisors operate more efficiently and collaborate with clients in their investment targets. In September 2018, the company announced the launch of Originate, a new suite of solutions aimed at helping banks and credit unions deliver enhanced digital account opening and loan origination to customers.
In August 2018, the company upgraded its unified managed account (UMA) services to help financial institutions and advisors operate more efficiently and announced the launch of two enhanced consumer authentication solutions, step-up authentication and identity verification to help call centers counter card fraud.
The diversified product portfolio has led to a steady flow of customers, considering the rapidly changing financial services industry and increasing demand for digital banking and payment services.
Risks
Fiserv’s balance sheet is highly leveraged. As of Sep 30, 2018, long-term debt was $4.82 billion while cash and cash equivalents were $673 million. Such a cash position implies that Fiserv needs to generate adequate amount of operating cash flow to service its debt. High debt may limit the company’s future expansion and worsen its risk profile.
Additionally, Fiserv’s policy of acquiring a large number of companies results in some integration risk. Acquisitions can negatively impact its balance sheet in the form of a high level of goodwill and intangible assets, which totaled $7.25 billion or 67.5% of the total assets as of Sep 30.
Zacks Rank & Stocks to Consider
Currently, Fiserv is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector are Paychex, Inc (PAYX - Free Report) , WEX Inc (WEX - Free Report) and Automatic Data Processing Inc. (ADP - Free Report) , each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rates for Paychex, WEX and Automatic Data Processing are 8.5%, 15% and 12.5%, respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>