Shares of DST Systems Inc. (DST) have been trending higher post its partnership with Prudential Retirement, a business unit of Prudential Financial, to provide its expertise services related to retirement solutions.
Per the agreement, Prudential Retirement will use DST’s Retirement Income Clearing Calculator, a middleware platform specially built to connect the retirement product providers with the record keepers. This, in turn, helps the retirement income product providers to deliver their products to the end users in a cost effective manner.
DST has been launching innovative products to propel growth across its Financial Services segment. During the last reported quarter (third-quarter 2013), DST’s revenues from the Retirement business increased by double digits due to higher number of client additions.
Buoyed by these factors, the company expects to continue its investments in the Financial segment to support the revenue growth. Financial services companies that use DST’s software to service multiple clients generate incremental revenues with each additional client and/or transaction. The model ensures a minimum revenue level even when there are limited transactions.
We believe that DST’s business volume and massive scale of operation in Financial Services will attract new customers. Moreover, we expect steady contributions from recent acquisitions to support revenue growth. Continued share buybacks and dividend payments are the other encouraging factors
On the other hand, decreasing organic revenue growth, tough competition from Broadridge Financials Solutions Inc. (BR), Advent Software Inc. (ADVS) and Fiserv Inc. (FISV), and a high debt burden remain concerns.
Currently, DST has a Zacks Rank #3 (Hold).