A month has gone by since the last earnings report for Fiserv (FISV - Free Report) . Shares have added about 4.7% 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 Q3 Earnings, Revenues Lag Estimates, Stock Down
Fiserv reported disappointing third-quarter 2018 results wherein both earnings and revenues lagged the Zacks Consensus Estimate.
Adjusted earnings per share of 75 cents missed the consensus mark by 2 cents but rose on a year-over-year basis attributable to operating leverage, tax rate reductions and capital deployment.
Revenues of $1.41 billion lagged the consensus estimate by $19.4 million but came ahead of the year-ago figure by $12 million. Adjusted revenues of $1.35 billion increased $10 million on a year-over-year basis. The improvement in revenues was driven by strong results from a number of businesses, including Card, Biller, and Bank Solutions.
Revenues in Detail
Revenues at the Payments and Industry Products segment increased 6% year over year to $844 million. The upside was driven by card services and biller businesses’ solid performance and increased adoption and growing transaction volumes. In the quarter, debit transactions grew double digits, total P2P transactions, including both Popmoney and Zelle, grew nearly 50% and Mobiliti ASP subscribers increased 23% to nearly 8 million, all contributing significantly to growth in digital and payments solutions.
Revenues at the Financial Institution Services segment decreased 7.3% year over year to $574 million. These revenues were hurt by the divestiture of 55% interest of the company's Lending Solutions business (the "Lending Transaction").
Internal revenue growth was 5% in the reported quarter, with 5% growth in the Payments segment and 4% growth in the Financial segment.
Revenues at the Total processing and Services segment increased 2% on a year-over-year basis to $1.22 billion, while product revenues were down 5.9% year over year to $189 million.
Adjusted operating income of $425 million was down 2.3% from the year-ago quarter. Adjusted operating margin declined 100 basis points (bps) year over year to 31.6%. The decline was due to a negative impact of 160 bps resulting from Lending divestiture, acquisitions completed last year and the impact of client-focused incremental investments funded through tax savings. These were, however, partially offset by a positive impact of 60 bps from the company’s strong operational effectiveness performance and operating model leverage.
Adjusted operating income at the Payments and Industry Products segment was $267 million, up 5.1% year over year. However, adjusted operating margin contracted 40 bps to 34.2%. Segmental adjusted operating margin was hurt by a negative impact of 140 bps owing to acquisitions and investments from tax savings.
Operating income at the Financial Institution Services segment totaled $204 million, down 8.3% year over year due to the Lending transaction. Operating margin declined 40 bps to 32.7%.
Balance Sheet and Cash Flow
Fiserv exited third-quarter 2018 with cash and cash equivalents of $673 million compared with $348 million at the end of the prior quarter. Long-term debt at the end of the quarter was $4.82 billion compared with $4.81 billion at the end of the prior quarter.
The company generated $368 million of net cash from operating activities in the reported quarter. Free cash flow was $322 million. Capital expenditures were $94 million.
During the reported quarter, Fiserv repurchased 5.6 million shares for $438 million and announced a new 30 million share repurchase authorization. As of Sep 30, 2018, the company had 34.9 million shares available for buyback.
Fiserv raised the lower end of adjusted EPS guidance for 2018. Adjusted earnings per share are expected in the range of $3.10-$3.15, which indicates 25-27% year-over-year growth after adjusting for the Lending Transaction. The previously guided range was $3.02-$3.15 per share.
Fiserv continues to expect internal revenue growth of at least 4.5%. Additionally, the company anticipates adjusted operating margin to be around 10 bps and free cash flow conversion to be around 106% for 2018. Full year adjusted effective tax rate is expected to be below 22%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Fiserv has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Fiserv has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.