This financial tech company beat estimates by six cents in its latest quarter, and eight analysts have increased their earnings forecasts in the past month.
Fiserv (FISV)
from Game Changers
The financial services industry has changed considerably over a relatively short period of time. While the earliest forms of banking date back to around 2000 BC, but even the most rudimentary technology didn’t really come about until 1959, when the standardized lettering we see used for account numbers on checks was introduced.
Fast-forward to 2015. Today it takes mere seconds to use my fingerprint and my iPhone to pay for groceries. I can use direct deposit to collect income and pay my bills with a few clicks on my laptop.
To most, innovations like online banking and account management are just a nice convenience afforded to us by improving technology. To us, these technologies look like an opportunity.
One company in particular is behind the technology powering much of the commonly used online banking, electronic bill payments, bank account management, credit and debit card production and transaction processing systems. This company’s technology and systems have brought about more industry change since its founding in 1984 than the industry has witnessed at any other time in history.
That company is Fiserv (FISV), which offers highly scalable financial processing systems of all kinds, including the software banks use to manage online banking and transactions. Because of high switching costs and the fact that its technologies are highly specialized, Fiserv has enjoyed a very loyal customer following. Meanwhile, the company is branching into new and promising areas while allocating its strong and consistent cash flow effectively.
Fiserv will close its 30th consecutive year of double-digit earnings per share growth at the end of 2015. And things keep looking up. Fiserve recently announced that it expects to earn more in 2015 than even the top-end of its previous guidance range. The company updated its full year EPS guidance from a range of $3.74 to $3.83 to a range of $3.84 to $3.87.
Catalyst 1: Stock repurchases. Fiserv repurchased $514 million worth of its own stock during the quarter, with an average purchase price of $81 per share. Considering that Fiserv’s share price only dipped as low as $81 per share during a three-day window in August and is now trading for $96 per share, Fiserv has again shown itself to be a prescient buyer of its own stock. Fiserv has already retired 12.9 million shares through buybacks in 2015, with authorization to buy an additional 6.9 million shares. Assuming Fiserv completes the authorized buyback program, it will have eliminated nearly 20 million shares this year and reduced the share count by nearly 10%.
Catalyst 2: Scalability and Improving Operating Margin. Adjusted operating margin reached 33.1% during the quarter and 32% for the year so far and the CEO mentioned during the earnings call that the company’s goal is to improve operating margin by 1% to 0.5% each year.
Catalyst 3: The Continued Push Toward Online, Digital and Paperless. With pay card solutions, security and fraud solutions, bank account management solutions, online banking portals and more, Fiserv is involved in just about all of the technologies both behind-the-scenes and front-and-center in the banking and financial services industry.
We expect to continue seeing double-digit earnings growth, rising margins and EPS figures that are boosted by the company’s ongoing share repurchases. We’re particularly excited about Fiserv right now because of the accelerated buyback during the most recent quarter, new products coming online for some of Fiserv’s biggest customers as well as the continued trend towards digital payments and online banking.
Ian Wyatt and Jay Taylor, Game Changers, www.wyattresearch.com, 866-447-8625, October 29, 2015