Riding on a strong growth momentum ahead of its second quarter earnings release, the shares of Total System Services Inc. (TSS) reached a new 52-week high of $25.28 on Jul 9. This surpassed its previous high of $24.90 on Monday. This Zacks Rank #2 (Buy) stock escalated about 8.8% in the last 52 weeks.
Yesterday’s closing price represents a strong a year-to-date return of about 19.1% as compared with the S&P 500 index return of 17.8%. Average volume of shares traded over the last three months stands at approximately 1,468.7K.
On Apr 23, Total System reported first-quarter 2013 earnings of 33 cents per share that fell short of the Zacks Consensus Estimate by a penny. However, the results were higher than 30 cents recorded in the year-ago quarter. The company delivered positive earnings surprise in 2 of the last 4 quarters, with an average beat of about 1.14%.
Total System’s growth is driven by its diversified product portfolio, technical competence and expansion into high-potential emerging regions via strategic acquisitions and alliances. Improvement in client accounts and higher long-term contracts further enhance transaction volumes, which bodes well for both the operating and competitive leverage.
The recent acquisition of NetSpend is expected to weigh on the expense and cash flow for some time. However, the long-term growth outlook associated with the acquisition, an optimistic guidance for 2013 as well as an effective and consistent capital deployment plan instils investor confidence.
Further, Total System appears to be an undervalued stock. The shares are trading at a 7.9% discount to the peer group average on a forward price-to-earnings basis and 17.7% on a price-to-book basis.
While return on equity of 17.4% is below the peer group average of 20.1%, return on assets of 12.5% is above the peer group average of 9.5%. The estimated long-term earnings growth rate is pegged at 11.6%, lower than the peer group average of 14.4%.
Apart from Total System, other outperformers in the electronic payment processing sector include MasterCard Inc. (MA), Visa Inc. (V) and Heartland Payment Services Inc. (HPY). All these stocks carry a Zacks Rank #2 (Buy).
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