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Fiserv is Helping Banks Go Digital

Stock (Symbol)

Fiserv (FISV)

Stock Price

$100

Sector
Financial
Data is as of
October 10, 2016
Expected to Report
Oct 25 – 31
Company Description
fiserv_orange_logoFiserv, Inc. (Fiserv) is a global provider of financial services technology. The Company provides account processing systems; electronic payments processing products and services, and related services, including document and payment card production and distribution, check processing and imaging, source capture systems, and lending and risk management products and services. The Company’s Payments and Industry Products segment primarily provides debit, credit and prepaid card processing and services, electronic bill payment and presentment services, Internet and mobile banking software and services, person-to-person payment services, and other electronic payments software and services. The Company’s Financial Institution Services business segment provides account processing services, item processing and source capture services, loan origination and servicing products, cash management and consulting services. Source: Thomson Financial
Sharek’s Take
David SharekFiserv (FISV) is helping banks go digital. The company provides technology that allows withdrawing money from an ATM, money transfers and mobile banking to more than 13,000 banks and credit unions around the world. It integrates banks with billers including AT&T, Discover, T-Mobile, Chase, American Express and utilities to make paying bills online easy. This is a high quality stock that has delivered double-digit profit growth every year since 1986 and management targets 11-18% profit growth going forward. Revenues grow only around 5% a year, but the company buys back lots of stock to boost EPS, and has repurchased around a third of the shares outstanding the past ten years. Management repurchased $600 million in stock this year, which is around 3% of shares. Fiserv is a safe conservative stock with an outstanding track record. Recently new technologies like chip cards have helped take profit margins up. Thus Wall Street has given FISV a higher P/E ratio than it used to have even though profit growth continues to hover around 15% a year. The P/E used to be in the mid-teens (2008-2012) and now its 23. Some are making a case FISV deserves the higher P/E, but I always think there are opportunities to get stocks on dips. Although this stock is down off its highs, I think it’s still a little high and I’m waiting for it to come down some more before buying in.
One Year Chart
fisv_2016_q3Last qtr Fiserv came through with 14% profit growth on just 5% sales growth. The company beat by a penny and Annual Profit Estimates didn’t move much either way. Estimates for the next 4 qtrs are 10%, 16%, 9% and 14%. Last qtr when the stock was $109 the P/E was 25 and now the stock’s $100 with a P/E of 23Notice the Estimated Long Term Growth Rate is 13% per year. That’s also the rate of profit growth the past ten years. So I don’t stand behind the argument that this stock deserves a vastly higher P/E because conditions have improved.
Fair Value
fisv_2016_q3_phThe stock had a P/E of 19/20 before the financial crisis, then a 11-to-14 P/E in the years after. In 2013 the P/E jumped to 17, then 19 a year later. Last year the median P/E was 22 and I think that was a bit too much. My Fair Value is a 20 P/E and that equates to $89. Next year’s Fair Value is $100 and since that’s the current price I think that means the stock will sit here a few months.
Bottom Line
fisv_2016_q3_10yrFiserv has grown profits at least 10% per year every year since 1986. This stock has stability and safety and would be a great addition to conservative growth accounts — if the price were right. But new technologies and a decent outlook for bank spending has pushed FISV higher than it should be. Also. this ten-year chart shows the stock when on a nice run higher and since the trend is your friend the trend probably took the stock up more than it should have. I have FISV on my radar and will look to purchase for the Conservative Portfolio if it dips down another $10.
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