Estimates for Total System Services, Inc. TSS have been revised upward over the past 30 days, reflecting analysts' optimism on the stock. The stock has seen the Zacks Consensus Estimate for 2018 earnings move 0.2 % north over the same time frame.
Shares of this Zacks Rank #2 (Buy) company have dipped 2% in the past year versus the industry’s growth of 3.1%.
It also carries a favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.
Now, let’s focus on some important factors that make the company an investor favorite.
Positive Earnings Surprise History: The company boasts an encouraging earnings surprise history, the average trailing four-quarter beat being 7.12%. This definitely reflects the company’s operational excellence.
Bullish 2018 Earnings Guidance: The company has also raised its 2018 outlook after witnessing solid results. It estimates total revenues on a non-GAAP basis in the band of $3.79-$3.84 billion (compared with the former forecast of $3.94-$4.04 billion), reflecting 11-13% year-over-year growth. Adjusted EPS is expected between $4.41 and $4.47, up from the earlier projection of $4.3-$4.4. This in turn, reflects a surge of about 31-33%. The company expects free cash flow between $770 million and $800 million. Its favorable earnings view instills investor confidence in the company.
Consistent Revenue Growth: Over the past several years, the company’s revenues improved at a CAGR of 27% during the 2014-2017period. This momentum also continued into the first nine months of 2018 with the metric rising 13% year over year. The company’s revenue base is envisioned to continue with its bull run going forward on the back of new deals, extended partnerships, buyouts and an expansion of service suite.
Strong Merchant Solutions Segment: Total System’s merchant acquiring services have consistently been in focus given the growth in direct businesses and higher sales productivity. This portfolio continues to thrive on the back of strategic acquisitions like that of TermNet, Vanguard Payment Systems, TransFirst, Central Payment, Cayan and iMobile3. The company’s management believes that given its potent distribution network, product set, channel diversification and a rapidly-growing integrated channel, the merchant segment might witness revenue growth in the 22-24% range with a margin expansion of up to 50 basis points.
Cash Flow: Total System has a strong track of cash flows. Free cash flow grew 22%, 45% and 14.8% in 2015, 2016 and 2017, respectively. The same was up 11% during the first nine months of 2018. For the current year, the company expects free cash flow between $770 million and $800 million. It also remains committed to add shareholder value via a disciplined capital management. We expect the company’s free cash flow and deleveraging progress to consistently widen its scope of investment opportunities.
Growth Projections: The Zacks Consensus Estimate for current-year earnings is pegged at $4.46, representing a year-over-year surge of 32.34% on revenues of $3.82 billion.
For 2019, the Zacks Consensus Estimate for earnings per share stands at $4.89 on $4.08 billion revenues, translating into a respective 9.7% and 6.6% year-over-year rise.
Further, the company’s estimated long-term (five years) EPS growth rate of 14.2%, which is greater than the industry’s earnings growth rate of 13.5%, promises rewards for investors.
Other Stocks to Consider
Investors interested in the financial transaction services sector can also look into some other top-ranked stocks like Cardtronics plc CATM, Evertec, Inc. EVTC and Green Dot Corporation GDOT.
Cardtronics plc provides automated consumer financial services via its network of automated teller machines (ATMs) and multi-function financial services kiosks. The company sports a Zacks Rank #1 (Strong Buy) and came up with average four-quarter beat of 50.24%.You can see .
EVERTEC engages in transaction processing business, serving financial institutions, merchants, corporations and government agencies in Latin America and the Caribbean. The stock carries a Zacks Rank of 2 and pulled off average earnings surprise of 16.99% over the last four reported quarters.
Green Dot operates as a pro-consumer bank holding company, providing personal banking for the masses. The company has a Zacks Rank of 1 and delivered average four-quarter positive surprise of 18.40%.
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