Expanding its merchant service solutions, on Friday, Total System Services Inc. (TSS) announced that it has bought the merchant portfolio of Florida-based Vanguard Payment Systems Inc. However, the financial details were not revealed.
Accordingly, the merchant accounts acquired portfolio from Vanguard will now have access to TSYS Merchant Solutions’ (TMS) products and services, which are customized to suit the client’s needs.
Aspiring to be among the top 10 global merchant acquirer, Total System has been gearing up to boost its merchant acquiring business. In May this year, the company strategically allied with Caledon Card Services in Canada and also acquired Atlanta-based merchant acquirer, TermNet Merchant Services. The latter is the 52nd largest merchant acquirer in the US by dollar volume, according to The Nilson Report.
Earlier, in January this year, Total System had fully acquired First National Merchant Solutions LLC (FNMS), thereby renaming it as TMS.
Overall, we believe that although the complete acquisition of TMS and expansion into merchant acquiring services is expected to drive growth, sole dependence on it could be risky for the long-term growth. Total System faces stiff competition from dominant players such as Global Payments Inc. (GPN) and Alliance Data Systems Corp. (ADS). Currency and interest rates fluctuations pose additional risks.
However, in the long run, we believe that the overall market stability and healthy impact of the regulations in the card industry will help recover the number of client accounts and long-term contracts.
Estimate Trend Revision
Over the last 30 days, none of the 17 analysts covering the stock have changed their estimates for the third quarter of 2011. Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of 29 cents per share, which would be up by 14.1% from the year-ago quarter.
The absence of movement in estimate revisions for the third quarter indicates no clear directional pressure on the stock in the near term.
With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 6.20%. This implies that TSS has surpassed the Zacks Consensus Estimate by 6.20% over that period.
However, the downside potential for the third quarter estimate, essentially a proxy for future earnings surprises, currently stands at 3.45%.
Additionally, Total System carries a long-term ‘Neutral’ recommendation with a Zacks Rank #3 over the near term. The company is scheduled to release its results after the market closes tomorrow.
ALLIANCE DATA (ADS): Free Stock Analysis Report
GLOBAL PAYMENTS (GPN): Free Stock Analysis Report
TOTAL SYS SVC (TSS): Free Stock Analysis Report
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