A month has gone by since the last earnings report for Fiserv (FISV - Free Report) . Shares have added about 6.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Fiserv due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Fiserv’s Q2 Earnings and Revenues Surpass Estimates
Fiserv reported solid second-quarter 2018, surpassing the Zacks Consensus Estimate on both counts.
Adjusted earnings came in at 75 cents per share, beating the Zacks Consensus Estimate by a penny and increasing 32% from the year-earlier quarter. The bottom-line growth was driven by higher revenues, lower taxes and disciplined capital allocation.
Revenues of $1.42 billion outpaced the consensus mark by $2 million and increased 2.5% year over year. Adjusted revenues of $1.35 billion increased 2% year over year. The improvement in revenues can be attributed to strength in card, biller, and core account processing businesses, which also included strong license revenues.
Revenues in Detail
Internal revenues grew 6% in the reported quarter, with 5% growth in the Payments segment and 7% growth in the Financial segment.
Revenues at the Payments and Industry Products segment increased 7.4% year over year to $837 million. The upside was driven by card services and biller solutions’ solid performance. In the quarter, debit volume grew high single digits, P2P transactions, including Zelle, grew roughly 30%, and Mobiliti ASP users increased 24%, all contributing significantly to growth in digital and payments solutions.
Revenues at the Financial Institution Services segment decreased 5.3% year over year to $590 million. Segment revenues declined as a result of divestitures.
Revenues at the Total processing and Services segment increased 1.8% on a year-over-year basis to $1.21 billion, while product revenues were up 6.5% year over year to $213 million.
Adjusted operating income in the second quarter totaled $439 million, up from $424 million in the year-ago quarter. Adjusted operating margin was 32.4%, up 40 basis points (bps) year over year.
Adjusted operating income at the Payments and Industry Products segment was $270 million, up from $239 million in the year-ago quarter. Adjusted operating margin of 35% increased 170 bps year over year.
Operating income at the Financial Institution Services segment totaled $201 million compared with $214 million in the year-ago quarter. Operating margin of 34% declined 30 bps year over year.
Balance Sheet and Cash Flow
Fiserv exited second-quarter with cash and cash equivalents of $348 million compared with $382 million in the prior quarter. Long-term debt at the end of the quarter was $4.8 billion compared with $4.6 billion at the end of the first quarter.
The company generated $241 million of net cash from operating activities and spent $92 million on capex. Free cash flow was $175 million in the second quarter.
During the quarter, Fiserv repurchased 5.4 million shares for $390 million. As of Jun 30, 2018, the company had 10.4 million shares available for buyback.
Fiserv continues to expect internal revenue growth of at least 4.5%. Adjusted earnings per share are expected in a split-adjusted range of $3.02-$3.15, which reflects 22-27% year-over-year growth as adjusted for the Lending Transaction.
Adjusted effective tax rate is expected to be between 22% and 23% for 2018. Free cash flow conversion is projected to be within the range of 106-111% for 2018. Additionally, the company anticipates adjusted operating margin to expand between 10 basis points and 30 basis points for the full year. Further, Fiserv expects adjusted earnings between $3.02 per share and $3.15 per share, up 22-27% from 2017.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Fiserv has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our style scores.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Fiserv has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.