On Dec 22, we updated our research report on Total System Services, Inc. TSS.
Total System has undertaken inorganic growth initiatives to strengthen 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, according to 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.
Total System’s North American Segment is also growing significantly. New deals with Tangerine Bank in Canada, a seven-year contract with Atlanticus Holdings, formally known as CompuCredit, and contract extensions with Premiere Bank, ING Bank, Metro Bank, First Hawaiian Bank and Servis1st Bank further poise it for long-term growth.
Its International business is also growing strongly. New sales pipeline in core European processing business remains healthy.
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 steadily over the past eight quarters.
Moreover, merchant acquiring services have remained in focus given the growth in direct businesses and higher sales productivity.
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, significant exposure to interest rate risks associated with the investment of available cash and foreign exchange headwinds raise caution. Additionally, increased debt burden and high backlog of accounts remain the concerns.
Total System carries a Zacks Rank #2 (Buy). Other favorably placed stocks in the same industry are Fiserv, Inc. FISV, Global Payments Inc. GPN and Heartland Payment Systems, Inc. HPY. All these stocks have the same Zacks Rank as Total System.
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