On Feb 19, Zacks Investment Research downgraded Total System Services Inc. (TSS) by a notch to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Total System has been experiencing declining earnings estimates on the back of dismal market trends following fourth-quarter 2013 results. Additionally, this electronic payment processing and merchant acquiring services provider underperformed the 6-month S&P 500 index, which clocked growth of 11.2% against Total System’s 5.5%.
On Jan 28, Total System reported fourth-quarter 2013 operating earnings per share of 44 cents, which missed the Zacks Consensus Estimate of 45 cents but beat the prior-year quarter equivalent of 37 cents.
Although top-line growth of 25.4% year over year drove the results, most of it was fueled by the NetSpend acquisition, while organic growth remained tepid on account of lower revenues from merchant acquiring services. Also, an upsurge in costs of services, operating and merger expenses substantially hampered results, thereby deteriorating the operating cash flow.
Furthermore, despite incremental revenues from the latest acquisitions, management expects operating earnings per share to grow in the band of 11–13% in 2014, noticeably lower than 18% growth recorded in 2013. This implies higher expense flow, which can restrict the desired upside in margins and cash flow.
At such a juncture, higher debt obligations adversely affect the financial leverage, further raising risks on healthy capital deployment. Alongside, risks related to regulatory challenges and integration of newly expanded business amid intense competition and foreign currency fluctuations cast a shadow on growth prospects.
Meanwhile, the Zacks Consensus Estimate for 2014 dropped 5.9% to $1.82 per share in the last 30 days. Even the same for 2015 fell 5.7% to $2.09 during the same period.
Meanwhile, the Most Accurate estimate for Total System’s 2014 and 2015 earnings stands at $1.79 and $2.05 a share, resulting in an Earnings ESP of -1.7% and -1.9%, respectively. No upward revision in estimates was witnessed for both the years.
Other Stocks to Consider
While we prefer to avoid Total System for the time being, some better-ranked financial stocks in the industry are Vantiv Inc. (VNTV), Global Payments Inc. (GPN) and Verifone Systems Inc. (PAY). All these stocks carry a Zacks Rank #2 (Buy).
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment