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Total System Services, Inc. (TSS - Free Report) delivered the coveted triple play for the third quarter of 2011: a positive revenue beat, positive earnings beat, and increased guidance from management.

This caused analysts to revise their estimates higher for both 2011 and 2012, sending the stock to a Zacks #2 Rank (Buy).

The company also increased its quarterly dividend for the first time in over 5 years. It now yields a solid 2.1%.

Company Description

TSYS provides electronic payment processing for companies, generally under long-term processing contracts. Approximately 78% of revenue comes from the United States.

It is headquartered in Columbus, Georgia and has a market cap of $3.9 billion.

Third Quarter Results

The company delivered better than expected results for the third quarter of 2011. Earnings per share came in at 30 cents, beating the Zacks Consensus Estimate by 2 cents. It was a stellar 31% increase over the same quarter in 2010.

Total revenue rose 6% year-over-year to $460 million, ahead of the Zacks Consensus Estimate of $457 million. This was driven by a 13% jump in total issuer cardholder transactions.

The International Services segment saw top-line growth of 17% as transactions jumped 12% year-over-year. The Merchant Services segment was the laggard, with total revenues declining 2% due to a 6% drop in transactions. North America Services, its largest segment, saw 5% revenue growth thanks to a 13% increase in transactions.

Raised Guidance

Following strong Q3 results, management raised its revenue and EPS guidance for the remainder of the year, citing the "resiliency of the card market, the increase in transactions, addition of new accounts from our sales pipeline and associated fees".

The company now expects EPS in the range of $1.14-$1.15 on revenue growth of 5-6%. This prompted analysts to revise their estimates higher for both 2011 and 2012, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2011 is now $1.14, within guidance, and representing 27% EPS growth over 2010. The 2012 consensus estimate is currently $1.26, corresponding with 11% EPS growth.

Dividend Hike

The company not only raised guidance, it raised its dividend too. This marked its first regular quarterly dividend hike since 2006.

It now yields a solid 2.1%.

Reasonable Valuation

The valuation picture looks reasonable. Shares trade at 15.3x 12-month forward earnings, a discount to its 10-year median of 19.6x. Its price to sales ratio of 2.2 is also below its historical multiple of 2.8.

The Bottom Line

TSYS continues to deliver better than expected results, prompting analysts to revise their estimates higher. With strong earnings momentum, solid growth projections, a 2.1% dividend yield and reasonable valuation, TSYS offers attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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