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Fiserv and Financial Regulation

August 19, 2010 | About:
Josh Zachariah

Josh Zachariah

38 followers
A new holding that showed up on Berkshire Hathaway's recent stock holdings was Fiserv Financial. Fiserv is a financial services company that specializes in various payments and processing services such as ACH, debit, credit and check images to name a few. The firm serves a broad array of firms in industries like banks, utility companies, healthcare, retailers and municipalities.

The company has had sustained a return on equity of no less than 13% for the past 10 years and as high as 22% in 2008. Fiserv had a times interest earned for the past 10 years in excess of 15 and has also had 10 consecutive years of free cash flows. It trades just under a p/e ratio of 13 for this years earnings. From a financial standpoint it meets many of the qualities Warren Buffett looks for in a stock. Whether it has some kind of moat or is a low-cost producer, I don't know. Being an exceptional business insulated from competition, however, is truly what Buffett looks for. The company does offer a lot of technology to banks and thus stands to gain if the condition of banking industry improves. Buffett's steepening position in Wells Fargo and comments about housing may speak to that.

The newspaper American Banker had written an article that gave mention to Fiserv. It spoke about opportunities for firms in wake of the recent financial legislation. In particular they mention the benefit of point-of-sale machines that can determine the cheapest processing option. One of the features of the bill is the chipping away of the visa-mastercard stronghold of processing payments. The paper writes that a "visa-branded debit card that is currently linked only to Visa's Interlink network for PIN transactions, for example, would have to add another network not owned or operated by Visa to satisfy the requirement." Those other networks would include companies like Discover and Fiserv among others.

The paper also notes that transaction costs for debit cards are expected to be cut significantly further putting a dent in the mastercard-visa moat. The manufacturer Hypercom stands to benefit as newer models of their credit swiping machines with capabilities of finding the cheapest processer should show increased demand.

About the author:

Josh Zachariah
I credit my father and Warren Buffett for molding me into the investor I am today.

Rating: 3.4/5 (13 votes)

Comments

valuefan
Valuefan premium member - 4 years ago
Thankyou. This was an excellent article. Based on a Guru's purchase and then just enough

information.
Josh Zachariah
Josh Zachariah - 4 years ago
Thanks for the feedback! I'll try to write what people want to hear about.

Note on the times interest earned; the 15 represents an average for the past 10 years. Fiserv did touch a low of about 3 in 2008
vgm
Vgm - 4 years ago
Thanks for the interesting article.

Given the relatively small amount involved (ca $230 million) this is probably a Lou Simpson pick, not Buffett. It may be of interest that the highly regarded Glenn Greenberg (formerly Chieftain Capital, now Brave Warrior Capital) also made Fiserv a new purchase this quarter.

Greenberg and Simpson were partners for many years and over time have often bought the same stocks.

vgm
dew_nay
Dew_nay - 4 years ago
FISV has also reduced share count substantially in the past 3 years by more than 13%.

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