Seth Klarman (Trades, Portfolio) is a legendary value investor who some think will be the next Warren Buffett (Trades, Portfolio) due to his similar investment approach. The guru likes to invest in companies while they are trading at a significant discount to fair value; he even wrote a book on the subject called “Margin of Safety.”
During the fourth quarter of 2021, Klarman purchased Fiserv Inc. (FISV, Financial) at an average price of $103 per share. Since the purchase, the stock has fallen 4.3%. As the investor only has 53 stocks in his 13F equity portfolio as of Dec. 31, every bet is calculated.
Additionally, the global fintech market is expected to grow at a compound annual rate of 23.58% from 2021 to 2025, so Fiserv may benefit.
Let's take a closer look at the stock to see if any value can be found.
What does Fiserv do?
Fiserv is a global payments and fintech provider, offering solutions for data processing, account processing, digital banking, card issuer processing and its Clover cloud-based point-of-sale platform.
One of the three largest data processing companies in the U.S. and the nation's largest independent processor of checks, the Brookfield, Wisconsin-based company offers a mix of integrated data processing solutions to over 10,000 financial institutions in more than 90 countries.
The company's success has been driven by a prudent acquisition strategy combined with top-level customer service. For example, in the 1980s, Fiserv acquired 16 companies, which boosted annual revenue by over 3,000%. In the 1990s, it considered over 600 companies for a potential acquisition, but purchased only six.
While some may consider the scale of its operations to be too complex, they also help to diversify Fiserv's revenue. Some of it subsidiaries include First Trust Corp., Fiserv Correspondents Services Inc., Fiserv Investor Services Inc., Fiserv LeMans Inc., Fiserv Solutions Inc., Fiserv Securities Inc., Information Technology Inc. and The Freedom Group Inc.
Fiserv's competitors include Integrated System Solutions Inc. and Electronic Data Systems Corp.
Growing financials
Fiserv's financials have recorded tremendous top- and bottom-line growth. For full-year 2021, revenue grew 11% to $16.2 billion. This was driven by a 20% sales increase in the acceptance business, a 4% gain in the the fintech segment and 6% boost to sales in the payments division.
The adjusted operating margin increased by 250 basis points year over year to 35.6%.
The company's profits also continued to show strong growth, with adjusted earnings per share increasing 26% to $5.58 for the year. Free cash flow was down slightly from the prior year at $3.53 billion, however.
Is the stock undervalued?
The GF Value Line, which establishes an intrinsic value for a stock using historic multiples, an adjustment factor based on the company's past performance and future earnings estimates. According to this calculation, the stock is modestly undervalued currently.
Fiserv also announced a share buyback program consisting of 23.3 million shares of common stock for $2.57 billion. This is a positive sign as it shows management is bullish on the company and its valuation.
Final thoughts
Fiserv is a strong data processing and fintech provider with growing financials and an appealing valuation. Klarman's recent purchase of the stock also works in its favor. While the company's complex business model may be a downside to the stock, it still looks like a great growth at a reasonable price play.
