DST-Charles Schwab Announce Pact

Information and delivery services provider DST Systems Inc. ( DST - Analyst Report ) recently sealed a multi-year deal with San Francisco-based brokerage firm Charles Schwab & Co. Inc. The firm is a subsidiary of Charles Schwab Corp. ( SCHW - Analyst Report ) . Financial terms of the deal were not disclosed.

Charles Schwab provides financial services (securities brokerage, banking, money management and financial advisory services) to individual investors and independent investment advisors. It manages 8.8 million active brokerage accounts, 1.6 million corporate retirement plan participants, 874,000 banking accounts, and $2.01 trillion in client assets as of Jan 31, 2013.

DST will be responsible for managing, printing and delivering investment-related documents, as well as bank and tax statements. Also, DST will help Charles Schwab in producing electronic statements and their efficient distribution to its clients. DST’s services will be provided by its Customer Communications segment.

Winning the deal was not easy for DST and it had to prove the benefits of its services for the brokerage house. Contended by DST’s presentation and realizing its cost effectiveness, Charles Schwab opted for the Customer Communications solutions.

DST’s Customer Communications Segment helps businesses to improve operational performances across sales, marketing, customer service, technology, finance, operations and compliance. The segment offers digital print, electronic solutions, direct marketing and on-line marketing services.

The Customer Communications segment was formerly known as Output Solutions but was renamed during the fourth quarter 2012 results to reflect its product offerings more appropriately (previously the segment used to deal in physical output solutions, but now offers data management and insight, electronic and physical communication). DST also acquired Newkirk Products, Inc. in May 2011 to expand its operations in North America.

We see a lot of potential for the Customer Communications segment due to its association with Charles Schwab as its success with the output solutions could fetch similar deals, going forward.

DST’s fourth quarter performance was encouraging with the top and bottom lines surpassing the Zacks Consensus Estimates. We are bullish on the stock due to its continuous share buybacks, accretions from the acquisitions, improving trend in businesses and wide exposure in the insurance vertical.

Currently, DST has a Zacks Rank #2 (Buy). Investors should also look for similar stocks such as Pegasystems Inc. ( PEGA - Snapshot Report ) and Pervasive Software Inc. ( ) , which carry a Zacks Rank #1 (Strong Buy) and are worth buying.