Expanding its merchant services, Total System Services Inc. (TSS - Analyst Report) announced the extension of a long-term strategic alliance with CardWorks Inc.’s wing, Merrick Bank, the company’s client for over 7 years now.
The extension of the business pact reflects the market’s confidence in Total System. The company will continue to serve Merrick Bank by providing easy and usable solutions to the latter’s independent sales organization partners. Total System’s service portfolio also includes point-of-sale solutions, authorization, settlement, reporting, managed services and risk management solutions.
Of late, Total System has been investing to become a one-stop platform for all kinds of merchant and issuer solutions through its advanced services and technology upgrades. Alongside, the company has been strengthening its clientele base by offering customized and flexible processing solutions to all its partners. Such offerings also helped Total System gain a multi-year contract with St. Mary's Bank last week. St. Mary’s Bank is the first credit union in the US and will now gain leverage on its consumer credit card portfolio from the Total System’s payments services.
Total System has been witnessing improvement in its financials over the past few quarters based on its steady fundamental growth initiatives. We believe that its risk-free balance sheet, modest cash position and cash flow generating capability provide viable scope for efficient capital deployment. However, risks related to operating leverage and competitive pressure fromarch-rivals such as Heartland Payment Systems Inc. (HPY - Snapshot Report) and WEX Inc. remain eminent.
Based on the pros and cons, the Zacks Consensus Estimate currently pegs earnings at 33 cents for the fourth quarter of 2012, up about 6% over the prior-year quarter. For 2012, earnings are projected to increase to $1.29 per share. This reflects an increase of about 12.5% year over year, which is slightly higher than the upper end of management’s guidance of 10–12% growth for 2012. Based on its influential contracts, management also expects to achieve the higher-end of its guidance in all growth metrics.
Currently, we maintain a long-term Neutral stance on Total System with a Zacks #3 Rank, which implies a short-term Hold rating.