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Bull of the Day: Fiserv, Inc. (FISV)

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Fiserv, Inc. (FISV - Free Report) is perhaps one of the most important financial services companies in the U.S. and it recently significantly extended its reach. Shares of FISV have crushed the broader Business Service Market over the last five years and Fiserv looks poised to remain more relevant than ever in the digital money age.

The Basics

Fiserv is headquartered in Brookfield, Wisconsin, just outside of Milwaukee. The location doesn’t necessarily scream financial tech hub. Yet, FISV operates the backend payment and money transfer technology used by many financial institutions, banks, and credit unions. The firm officially offers digital banking solutions, account processing, payments and e-commerce solutions, and much more.

On July 29, the company closed its long-awaited, all-stock deal to buy First Data for roughly $22 billion. Chief executives often boast of synergies after acquisitions, but the combination of Fiserv and First Data does appear to be a nearly perfect match. Fiserv helps process debit and credit card transactions and other payments for banks, while First Data operates on the merchant side of these same transactions. First Data works with the likes of Walmart (WMT - Free Report) and Lyft (LYFT - Free Report) .

The joint company creates a situation where the two firms can sell their core services to each other’s clients. The beefed-up Fiserv is now better prepared to take on the likes of Square (SQ - Free Report) and other fintech standouts such as PayPal (PYPL - Free Report) . Fiserv’s cloud-based point-of-sale solution, called Clover, already competes directly with Square.

Fiserv now serves “thousands of financial institutions and millions of merchants and businesses in more than 100 countries.” The company also plans to invest $500 million over the next five years to ramp up and help expand in a financial environment that increasingly includes less cash and far more digital and electronic payments.  

 

 

 

 

More Fundamentals

As we mentioned at the outset, FISV stock has been on a strong run recently. Shares of FISV have soared 215% over the last five years, against its industry’s 78% average climb and the S&P 500’s 52% jump.

Over the last 12 months, shares of Fiserv are up 26%. This compares favorably to its sub industry’s (Financial Transaction Services Market—which includes Western Union (WU - Free Report) and Total System Services TSS 18% climb and blows SQ’s 35% downturn out of the water. Year-to-date, Fiserv stock is up 40% and currently rests at around $103 per share, which falls not too far short of its recent 52-week and all-time highs.

Fiserv’s valuation picture also hardly appears that stretched at the moment. In fact, it looks relatively impressive given its stellar run. Shares of FISV have traded as high as 28.2X forward 12-month Zacks Consensus earnings estimates over the past five years, well above its current 22.9X.

FISV’s forward P/E hovers right near its five-year median of 22.2X. On top of that, the financial services firm is trading a discount against its industry’s 26.9X average.

Furthermore, Fiserv’s forward price/sales ratio of 2.6 rests at its lowest point in five years. FISV has traded as high as 6.5 during this stretch, with a 4.2 median, which marks a huge discount against its industry’s 8.5.

Investors should note that the company’s price/sales ratio came down substantially after it completed its Frist Data deal. However, this means that FISV stock could have plenty of room to run since investors were willing to pay 6.5X forward sales before the deal went through, which is now six weeks old at this point.

 

 

 

 

Q3 Outlook & Beyond

Moving on, our Zacks Consensus Estimates call for the firm’s Q3 fiscal 2019 revenue to skyrocket 168% from $1.41 billion in the year-ago period to $3.79 billion. Clearly, this estimate includes the projected positive impact of First Data’s inclusion, which is then expected to boost total full-year revenue by 130% to $13.35 billion.

Peeking ahead to fiscal 2020, when roughly half of the year will include merger-comparable numbers, the company’s sales are projected to climb 26% above our 2019 estimate to hit $16.85 billion.

Fiserv’s adjusted third-quarter earnings are expected to climb 23.6% higher to hit $0.93 per share, with Q4’s EPS figure projected to come in roughly 37% above Q4 2018. Overall, FISV’s fiscal 2019 earnings are projected to jump 21.4%. Then, the company’s 2020 earnings are expected to soar nearly 30% above our 2019 estimate.

 

 

 

 

Bottom Line

Above, investors can see just how much Fiserv’s overall earnings estimates climbed following the merger, which is not always the case. Fiserv’s positive earnings estimate revision activity also helps the stock hold a Zacks Rank #1 (Strong Buy) at the moment. And the joint company is more prepared and well-equipped to expand and adapt in quickly changing financial tech environment.

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