Neutral on Fiserv


Year 2011 ended with an impressive revenue growth and buy-back activities. However, we continue to maintain a Neutral stance on Fiserv Inc. (FISV).

ZashPay and Mobile Money continue to fuel recurring revenues for Fiserv as it gets ready for 2012. The company has been privileged enough to accrue gains from a high customer retention ratio which bolsters long-term stability in its dealings with the outside market.

Catering to investor interests has always been of primary importance to the company. Not long ago, its Board of Directors authorized a new share repurchase program to buy back an additional 10 million shares of its common stock, which represents 7% of its current outstanding market shares.

We witnessed a strong 2011 and an upbeat revenue outlook for the coming year. The company recorded adjusted revenues of $4 billion for the year on the backs of strong annual sales across both its major segments. Furthermore, Fiserv did not cower under the pressure of existing threats accruing from contract renewal uncertainties and softness from financial services but posted a decent 4% - 6% adjusted revenue growth expectation for 2012.

Fiserv is a big name with widely international operations which make it vulnerable to both macro-economic fluctuations and endemic hindrances. However, it is commendable that the company never fails to achieve its long-term targets, which are continually upgraded from time to time. Currently, free cash flow of $2.5 billion is projected to generate over the next three years along with cost savings of $250 million over the next four years. Such tenacity along with ossified determination makes this company even more attractive to invest in, particularly for the long run.

Even though the scenario looks quite pristine and incorruptible, there are a few downsides which remain irrefragable. In an industry where aspects like loan demand declines, unrecognized revenue sources etc. are prevalent to make survival precarious; Fiserv does not appear to stand in a formidable position with few of its existing bottlenecks adding to the onus of the company.

The CashEdge acquisition, which can arguably be called the company’s most momentous acquisition till date, continues to remain onerous to Fiserv. We believe it to be ideal for the long run yielding revenues of up to $160 million in 2014; however, in recent times it paints a disappointing picture on the parent company’s financial position.

Fiserv faces major competitors in its industry which include names such as Heartland Payment Systems Inc. (HPY), Equifax Inc. (EFX) and Visa Inc. (V). It is imperative that Fiserv pays heed to removing bottlenecks such as low margin performance and due contract renewals to retain its position in the industry.

Judging by the present situation, we believe that the company needs to show vigor in its upcoming quarters to battle off its portents and emerge victorious. Hence, we find it wise to maintain a sideline view on the company’s stock for now.

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