On Jun 1, 2015, we issued an updated research report on Total System Services, Inc. TSS.
Total System has been adept in undertaking inorganic growth initiatives that have boosted its capacities as a payment processor. For instance, the acquisition of NetSpend in 2013 made Total System the second-largest program manager of dollars reloaded in prepaid cards per the Mercator Advisory Group. This not only enhanced the company’s footprint in the U.S. prepaid card industry but also bolstered its long-term growth through a diversified portfolio.
The electronic payment processing services revenues are generated from charges based on several factors. One of these factors – the number of accounts on file – has been increasing over the last few years and the first quarter of 2015 was also no exception.
Moreover, merchant acquiring services have consistently been in focus given the growth in direct businesses and higher sales productivity. Merchant services rebounded in first-quarter 2015 on improved sales volumes and point-of-sale transactions. Meanwhile, revenue recovery is believed to have improved in the international sphere with the completion of Virgin Money migration, improved pricing, expansion in debit processing, and healthy consumer spending.
Total System’s sound financial position enables it to meet most of its capital expenditure needs through internal funds. This also indicates disciplined working capital that can be deployed efficiently.
However, increased expenses, and significant exposure to interest rate risks associated with the investment of available cash as well as foreign exchange risk raise caution. Additionally, increased debt burden and high backlog of accounts are headwinds.
In Apr 2015, the company reported first-quarter earnings that beat the Zacks Consensus Estimate and improved year over year on growth across North America, NetSpend and merchant services segments, along with higher transaction volumes and new accounts. The company delivered positive earnings surprises in three of the last four quarter with an average beat of 9.7%.
Total System currently holds a Zacks Rank #2 (Buy). Investors interested in the financial services space can also consider stocks like Qiwi plc QIWI, Euronet Worldwide, Inc. EEFT and JetPay Corporation JTPY. While Qiwi and Euronet sport a Zacks Rank #1 (Strong Buy), JetPay has the same Zacks Rank as Total System.
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