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DST Systems Hits a New 52-Week High on Recent Buyout - Analyst Blog

Shares of  DST Systems Inc. DST hit a new 52-week high of $130.06 on Jul 10 and eventually closed at $129.85 per share. The closing price represents a robust one-year return of 39.8% and a year-to-date return of 37.9%.

Average volume of shares traded over the 10 days (308K) is more than the average volume traded over the last three months, which is roughly 224K. This Zacks Rank #2 (Buy) company has a market cap of $4.77 billion and expected long term growth rate of 11%.

Share Price Drivers

Some of the current optimism surrounding the shares can be attributed to its recently announced decision to acquire Wealth Management Systems Inc. (WMSI), which provides rollover and advisor solutions to the retirement services industry. This acquisition is expected to enhance the company’s ability to help asset managers and broker-dealers to keep hold of assets in the retirement space and win new businesses in the emerging retirement market.

DST Systems’ Financial Services segment deals with a number of offerings, such as shareowner recordkeeping, broker sub-accounting, recordkeeping system for the U.S. and retirement plan market etc. The company’s leadership and scale in this segment should help it win new business. We believe that the product diversity serves as a cushion for DST in case of demand volatility, resulting in a steady revenue stream.

We are also encouraged by Customer Communications’ revenue growth. The segment provides an electronic delivery program for proxy materials, which helps companies reduce costs associated with traditional print-and-mail proxy campaigns. Customer Communications operating revenues in the first quarter increased 0.2% year over year, mainly driven by new volumes from already converted clients. We believe that in accordance with the current trend of new business wins, this segment will continue to generate additional business, going forward.

Furthermore, DST shares also gained momentum onbetter-than-expected earnings reported in its first-quarter fiscal 2015. DST posted non-GAAP earnings of $1.40 per share, beating the Zacks Consensus Estimate of $1.26. On a year-over-year basis, earnings per share improved 25% aided by higher revenues and higher client additions.

Total revenue in the first-quarter was $702.3 million, up 2.7% from the year-ago quarter. Operating margin was also up 96 basis points on a year-over-year basis to 15.4%.

Moreover, we expect steady contributions from the 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 International Business Machines Corporation IBM and Fiserv Inc. FISV, and a high debt burden remain concerns.

Estimate Revision

DST witnessed one positive estimate revision (out of two estimates for fiscal 2016)in the past 60 days. The Zacks Consensus Estimate also moved north (by 1 cent) to $6.76 per share over the same time frame.

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FISERV INC (FISV): Free Stock Analysis Report
 
DST SYSTEMS (DST): Free Stock Analysis Report
 
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