A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
Here we focus on Fiserv, Inc. FISV, a stock with expected long-term earnings per share growth rate of 11.5%. Its earnings are expected to register 21.9% and 12.6% growth, respectively, in 2018 and 2019.
The company’s price performance over the past year looks impressive. Share of Fiserv have gained 19.3%, outperforming the S&P 500’s gain of 12.5%.
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We believe the stock has the potential to continue the momentum. The reasons behind our optimism include the company’s strategic acquisitions and alliances to boost its digital banking and payment services suite and shareholder-friendly moves.
Let’s discuss them in detail.
Strategic Acquisitions
Fiserv continues to expand its product portfolio and enhance its offerings with the help of strategic acquisitions. In 2017, Fiserv completed four acquisitions – Online Banking Solutions, Inc. (on Jan 17, 2017), PCLender, LLC (on Jul 31, 2017), Dovetail Group Limited (on Aug 18, 2017) and Monitise plc (on Sep 1, 2017). Thesebuyouts helped the company to improve cash management and digital business banking solutions and transform payments infrastructure.
In 2016, Fiserv acquired two businesses – Convenience Pay Services business of Hewlett Packard Enterprise Companyand Community Financial Services businessof ACI Worldwide, Inc. Both these buyouts expanded Fiserv’s biller solution offerings and enhanced its digital banking and payments solutions suite.
Considering the rapidly changing financial services industry and increasing demand for digital banking services, investment in digital-oriented technologies through strategic acquisitions should boost Fiserv’s long-term growth and improve competitiveness.
We believe that the company will continue to pursue accretive deals, which will boost its market share and customer base going forward. The company is focused into becoming a global leader in transaction-based technology solutions.
Partnerships
Fiserv continues to make prudent business moves. It is entering into partnershipsto expand into digitalization. On Apr 19,2018, Fiservannounced its partnership with SISCOOP to enable 26 Mexican credit unions to offer a full range of secured digital banking and payment services using Fiserv’s DigitalAccess technology. This came on the heels of Fiserv’s foray into digital transformation with Carter Bank & Trust of Martinsville, announced on Apr 9, 2018. The bank will use the Digital Edge suite from Fiserv to digitalize banking services and automate multiple manual processes as part of a strategic transformation.
Business Sale
Fiserv continues to profit from offloading assets. In first-quarter 2018, Fiserv sold its 55% stake in Lending Solutions business to funds affiliated with Warburg Pincus LLC. Fiserv received total sale proceeds of $419 million from the deal. The company will retain the remaining 45% stake in the Lending Solutions business.
On Jan 10, it completed the sale of the retail voucher business, MyVoucherCodes (acquired as part of its purchase of Monitise in September 2017) for $50 million. On May 11, 2017, Fiserv sold its Australian item processing business for approximately $17 million.
Shareholder-Friendly Moves
We are impressed with Fiserv’s consistent efforts to return value to shareholders in the form of share repurchases. In first-quarter 2018, Fiserv repurchased 5.7 million shares for an aggregate cost of $398 million. As of Mar 31, 2018, it had 15.8 million remaining under its share repurchase authorization. Fiserv repurchased shares worth $1.17 billion, $1.20 billion and $1.47 billion, respectively, in 2017, 2016 and 2015.
Such moves indicate the company’s commitment to create value for shareholders and underline its confidence in its business. These shareholder-friendly initiatives not only boost investors’ confidence but also positively impact earnings per share.
Bottom Line
The aforementioned factors positively impacted Fiserv’s performance in the last reported quarter. In fact, the company outperformed the Zacks Consensus Estimate in two of the trailing four quarters, delivering an average positive surprise of 0.4%. We believe the upbeat performance will continue in the quarters ahead, thus giving investors enough reasons to remain optimistic on the stock.
Zacks Rank & Stocks to Consider
Currently, Fiserv has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Business Services sector include Verifone Systems, Inc. PAY, FLEETCOR Technologies, Inc. FLT and WEX Inc WEX. All the stocks carry a Zacks Rank #2 (Buy).
The long-term expected earnings per share growth rate for Verifone, FLEETCOR Technologies and WEX is 14.9%, 16.5% and 14.3%, respectively.
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