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Fiserv, Inc. – A Company You Can Bank On

August 17, 2009 | About:
Fiserv [NDQ:FISV] August 17, 2009 $47.25

52-week range: $27.75 (Nov. 21, 2008) - $54.67 (Sep. 12, 2008)



Fiserv* is the leading provider of core processing and complementary services, such as electronic funds transfer and loan processing, for U.S. banks and credit unions. The acquisition of CheckFree made the company the leader in electronic bill payments as well. Fiserv serves 16,000 clients, with a focus on its legacy business with small and midsize banks.



* Company profile by Morningstar



In today’s weak economy, it’s good to find companies that continue to thrive even in bad times. Fiserv meets that description. Earnings per share rose each year from 1993 right through 2008 and 2009’s first half saw EPS up 9.3% year over year.



Zacks and Value Line project EPS of about $3.65 for 2009 and $4.10-$4.15 for 2010. Value Line puts FISV’s ‘earnings predictability’ and ‘stock price stability’ rankings at the 100th and 90th percentiles (with 100th being best). They also rank Fiserv as ‘above average’ for safety. Morningstar assigns a 4-Star rating (out of 5) and figures ‘Fair Value’ at $61 /share.



What makes Fiserv’s business so attractive is the ‘sticky’ nature of their services. Because it is so disruptive to change providers, Fiserv has posted around a 99% retention rate with its multi-year contracts. They have about 37% nationwide market share overall.



Fiserv got ahead of the curve in the trend towards online bill paying with their December 2007 acquisition of CheckFree. This is a fast growing business and CheckFree is the market leader.



Here are Fiserv’s per share numbers as reported by Value Line:



Year ........Sales ........ C/F ........ EPS ....... B/V ....... Avg. P/E


2002 .......11.91 ...... 2.12 ....... 1.36 ...... 9.56 ......... 27.5x

2003 .......13.90 ...... 2.51 ....... 1.61 ......11.32 ........ 21.8x

2004 .......17.25 ...... 2.99 ....... 2.00 ......13.20 ........ 18.4x

2005 .......20.40 ...... 3.40 ....... 2.30 ......13.57 ........ 18.5x

2006 .......24.13 ...... 3.75 ....... 2.51 ..... 14.18 ........ 18.2x

2007....... 21.14 ...... 3.89 ....... 2.66 ..... 14.94 ........ 19.9x

2008 ...... 30.44 ...... 4.73 ....... 3.27 ......19.24 ........ 14.2x

Despite the stellar results documented above, Fiserv shares are now offered at less than 13x this year’s and 11.6x next year’s estimates. That’s the lowest valuation on these shares ever

(excepting last fall’s panic low).



The 10-year median multiple was 25x and the past 5-year average P/E was 17.8x even including last year’s historic sell-off. A return to even 17 times this year’s $3.65 projection would bring FISV back to $62 or about 31% above today’s quote.



Is that a rational target price? As noted earlier, Morningstar sees fair value as $61. Value Line is using a 19 multiple for their own 3-5 year ‘normalized' P/E. History also confirms the possibility. Fiserv actually traded as high $59.80 in 2007 and $56.80 in 2008 when EPS came in at $2.66 and $3.27 – well below what they are presently.



Here’s a nice medium-term play that can capture most of that expected move even if FISV doesn’t reach my goal price right away.



.....................................................Cash Outlay ................... Cash Inflow

Buy 1000 FISV @$47.25 /share .......... $47,250

Sell 10 March $50 Calls @ $3.10 /share ...................................... $3,100

Sell 10 March $50 Puts @ $5.60 ............................................... $5,600

Net Cash Out-of-Pocket .................... $38,550



If high-quality Fiserv rises by at least $2.75 or 5.9% to $50, by the

March 19, 2010 expiration date:




· The $50 calls will be exercised.

· You will sell your shares for $50,000.

· The $50 puts will expire worthless.

· You will have no further option obligations.

· You will hold no shares and $50,000 in cash.



That’s a best-case scenario profit of $11,450 / $38,550 = 29.7%



achieved in about 7.1 months on shares that only needed to rise by a

minimal 5.9% from trade inception.





What’s the risk?



If Fiserv stays below $50 through March 19, 2010:



· The $50 calls will expire worthless.

· The $50 puts will be exercised.

· You will be forced to buy an additional 1000 shares.

· You will need to lay out another $50,000 in cash.

· You will have no further option obligations.

· You will end up with 2000 FISV shares.





What’s the break-even on the whole trade?




On the original 1000 shares it’s their $47.25 /share purchase price

less the $3.10 /share call premium = $44.15 /share.



On the ‘put’ shares it’s the $50 strike price less the

$5.60 /share put premium = $44.40 /share.



Your overall break-even would be $44.28 /share.



Fiserv could drop by as much as $2.97 /share or (-6.3%) without

causing a loss on this trade.





Summary:



Fiserv is a good quality, growth stock at an attractive valuation.

A target price of $60+ seems justifiable based on full year 2009 estimates.

The trade detailed above can produce a 7.1 month total return of almost 30% on any rise in FISV shares to $50 or above.



You are protected against loss as long as Fiserv remains above $44.28 through the March 19, 2010 expiration date.



Disclosure: Author is long FISV shares and short FISV options.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 2.0/5 (7 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago




Fiserv to Repurchase SharesBy: Zacks Equity Research

March 16, 2010

Fiserv, Inc. (FISV) announced that its Board has authorized it to repurchase up to five million additional shares of its common stock — approximately 3% percent of its outstanding shares.

As of March 1, 2010, the company had approximately one million shares remaining in its previous repurchase authorization. Fiserv repurchased 1.1 million shares of its common stock in the last quarter and 4.1 million shares in 2009.

Under the new authorization, Fiserv may repurchase shares in the open market or from privately negotiated transactions at the discretion of management, subject to its assessment of market conditions and other factors. The company currently prefers to use its operating cash flow to repay debt and fund capital expenditures, acquisitions and share repurchases, rather than pay dividends.

In 2009, capital expenditures stood at $198 million. Despite management focusing on repaying debt, the balance sheet of the company is highly leveraged. Fiserv had only $363 million of cash and equivalents and a total debt of $3.6 billion at year-end 2009, compared to $4.1 billion at the end of 2008.

In-Line Fourth Quarter

Last month, Fiserv reported results for the fourth quarter and full year 2009, which were in line with expectations. Revenues of $1.06 billion in the fourth quarter of 2009 were up 1.9% from a year ago. Earnings per share (EPS) came in at 94 cents for the quarter compared to 89 cents in the year-ago quarter, and were in line with the Zacks Consensus Estimate.

For 2009, the company reported revenues of $4.08 billion, down 11.1% from a year ago. EPS came in at $3.66 compared to $3.33 in 2008, in line with the Zacks Consensus Estimate.

Guidance for 2010

Going forward, management expects internal revenue growth in the range of 1% –3% in 2010. Operating margin is estimated to increase at least 50 basis points over 28.7% achieved in 2009.

EPS is projected between $3.96 and $4.07, a growth of 8% to 11% compared to $3.66 in 2009. The current Zacks Consensus Estimate is $4.01, with a downward potential of 0.25%.

Fiserv assists financial institutions and health plan administrators in managing their information systems so that they can efficiently deliver services to their customers.

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