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Fiserv (FISV) Rides on Buyouts, Product Suite Amid Debt Woes
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Shares of Fiserv, Inc. have gained 58.5% over the past year, outperforming 44.5% growth of the industry it belongs to.
Let’s delve deeper into the factors which justify the stock’s retention in investors’ portfolio.
What’s Driving Fiserv?
Fiserv continues to expand its product portfolio and enhance its offerings with the help of strategic acquisitions. The recent acquisition of First Data (completed on Jul 29) is one of the biggest financial mergers in a decade, and helped Fiserv emerge as one of the world’s largest payments and financial technology providers.
With integration progressing well, First Data is making significant contributions to Fiserv’s top and bottom-line performance. It contributed $1.6 billion to revenues and $396 million to operating income in the third quarter of 2019. This helped Fiserv to achieve robust internal revenue and free cash flow growth, and operating margin expansion in the quarter. Internal revenue growth was 6%, led by a 10% rise in the GBS merchant business. Adjusted operating margin improved 130 basis points (bps) to 29.8% and free cash flow was more than $800 million.
In 2018, Fiserv completed the buyout of Elan’s debit card processing, ATM Managed Services and MoneyPass surcharge free network for approximately $690 million. It should boost Fiserv’s payments portfolio, widen its client base and provide new solutions to enhance the value proposition for its existing 3,000 debit solutions clients. We believe that the company will continue to pursue accretive deals, which will boost its market share and customer base going forward. It is focused on becoming a global leader in transaction-based technology solutions.
The company’s diversified product portfolio continues to yield a steady flow of customers. The rapidly changing financial services industry and increasing demand for digital banking and payment services provide significant growth opportunities to Fiserv. Notably, third-quarter 2019 witnessed significant client additions. Fiserv's DNA platform signed six new clients. Debit transaction grew in high single digits and total P2P transactions, including Popmoney and Zelle solutions, doubled on a year-over-year basis and went up 15% sequentially. Mobiliti ASP subscribers increased 14% to 9 million and Mobiliti business clients increased 18%. Zelle transactions nearly tripled, backed by the number of live clients, which doubled sequentially. The company signed 130 Zelle clients in the third quarter (exceeding the combination of first two quarters of the year). Backed by such strong demand, it expects to witness more client additions going forward.
The company has been consistently rewarding its shareholders through share buybacks. During the first nine months of 2019, Fiserv repurchased 2 million shares for $156 million. In 2018, the company had repurchased shares worth $1.91 billion. Such moves indicate its commitment to create value for shareholders and underline confidence in its business. These initiatives not only instill investors’ confidence but also positively impact earnings per share.
Risks
In spite of significant growth prospects, Fiserv is not free from headwinds. The company has a debt-laden balance sheet. As of Sep 30, 2019, long-term debt was $22.12 billion while cash and cash equivalents were $1.03 billion. High debt may limit its future expansion and worsen risk profile.
The company’s core banking products and services are part of a highly competitive market. Maintaining strong and long-term client relationships is a difficult task amid stiff competition. Its policy of acquiring a large number of companies results in some integration risk.
Long-term expected EPS (three to five years) growth rate for S&P Global, Accenture and Booz Allen Hamilton is 10%, 10.3% and 13%, respectively.
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Fiserv (FISV) Rides on Buyouts, Product Suite Amid Debt Woes
Shares of Fiserv, Inc. have gained 58.5% over the past year, outperforming 44.5% growth of the industry it belongs to.
Let’s delve deeper into the factors which justify the stock’s retention in investors’ portfolio.
What’s Driving Fiserv?
Fiserv continues to expand its product portfolio and enhance its offerings with the help of strategic acquisitions. The recent acquisition of First Data (completed on Jul 29) is one of the biggest financial mergers in a decade, and helped Fiserv emerge as one of the world’s largest payments and financial technology providers.
With integration progressing well, First Data is making significant contributions to Fiserv’s top and bottom-line performance. It contributed $1.6 billion to revenues and $396 million to operating income in the third quarter of 2019. This helped Fiserv to achieve robust internal revenue and free cash flow growth, and operating margin expansion in the quarter. Internal revenue growth was 6%, led by a 10% rise in the GBS merchant business. Adjusted operating margin improved 130 basis points (bps) to 29.8% and free cash flow was more than $800 million.
In 2018, Fiserv completed the buyout of Elan’s debit card processing, ATM Managed Services and MoneyPass surcharge free network for approximately $690 million. It should boost Fiserv’s payments portfolio, widen its client base and provide new solutions to enhance the value proposition for its existing 3,000 debit solutions clients. We believe that the company will continue to pursue accretive deals, which will boost its market share and customer base going forward. It is focused on becoming a global leader in transaction-based technology solutions.
The company’s diversified product portfolio continues to yield a steady flow of customers. The rapidly changing financial services industry and increasing demand for digital banking and payment services provide significant growth opportunities to Fiserv. Notably, third-quarter 2019 witnessed significant client additions. Fiserv's DNA platform signed six new clients. Debit transaction grew in high single digits and total P2P transactions, including Popmoney and Zelle solutions, doubled on a year-over-year basis and went up 15% sequentially. Mobiliti ASP subscribers increased 14% to 9 million and Mobiliti business clients increased 18%. Zelle transactions nearly tripled, backed by the number of live clients, which doubled sequentially. The company signed 130 Zelle clients in the third quarter (exceeding the combination of first two quarters of the year). Backed by such strong demand, it expects to witness more client additions going forward.
The company has been consistently rewarding its shareholders through share buybacks. During the first nine months of 2019, Fiserv repurchased 2 million shares for $156 million. In 2018, the company had repurchased shares worth $1.91 billion. Such moves indicate its commitment to create value for shareholders and underline confidence in its business. These initiatives not only instill investors’ confidence but also positively impact earnings per share.
Risks
In spite of significant growth prospects, Fiserv is not free from headwinds. The company has a debt-laden balance sheet. As of Sep 30, 2019, long-term debt was $22.12 billion while cash and cash equivalents were $1.03 billion. High debt may limit its future expansion and worsen risk profile.
The company’s core banking products and services are part of a highly competitive market. Maintaining strong and long-term client relationships is a difficult task amid stiff competition. Its policy of acquiring a large number of companies results in some integration risk.
Zacks Rank & Stocks to Consider
Currently, Fiserv carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are S&P Global (SPGI - Free Report) , Accenture (ACN - Free Report) and Booz Allen Hamilton (BAH - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term expected EPS (three to five years) growth rate for S&P Global, Accenture and Booz Allen Hamilton is 10%, 10.3% and 13%, respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>