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Fiserv's Neutral Rating Retained

Zacks Equity Research

We continue to maintain a sideline stance on Fiserv Inc. (FISV), and thereby keep our Neutral recommendation on the company.

Fiserv is a world leader in providing financial services to technology solutions which include E-commerce systems and other services such as transaction processing, electronic bill payment and presentment, business process outsourcing, document distribution services, and software and systems solutions. The company has been inclined towards making profitable acquisitions over time, which include CheckFree Corporation, AdviceAmerica, iTech Corporation among many others.

The company’s recent Carefree acquisition has been a crucial turning point as Fiserv now focuses chiefly on high profit sectors such as online banking solutions and electronic transaction services. It has hence slowly started to steer away from its low margin products including check processing and lending solution services.

This move appears to be apt and wise considering the current macro environment where the fiscal contagion continues to pervade throughout the economy.

Recently acquired CashEdge Inc. by Fiserv in September 2011 with the intent of diversifying and refining its digital payments and channel strategies, surely is a profitable venture.

However, CashEdge seems to be dependent on untraceable P2P solutions which can adversely affect current operations of Fiserv and it would take time to stabilize in order to effectively ameliorate gains for the company.

Even though heavy technology investments are being implemented to improve demands, the company’s acquisition trend seems to be muted for now and we believe that it is advisable to remain on the sidelines before being too perspicacious and predict what the future has in store for the company.

In the recently announced third quarter 2011 results, FISV reported a net earnings increase of 1.8% while its net earnings per share came to $1.16, beating the Zacks Consensus Estimate of $1.14. Operating margins declined slightly to 29.0% from 29.4% in the previous year quarter.

Moreover, FISV continues to face stiff competition from big players in the industry including Fidelity National Information Services Inc. (NYSE:FIS - News), Online Resources Corp. (NasdaqGS:ORCC - News) and Jack Henry and Associates Inc. (NasdaqGS:JKHY - News).

The current Zacks Consensus Estimates for the fiscal years 2011 and 2012 are $4.58 and $5.11, respectively. In the short-run, we have a Zacks #2 Rank for the stock, which translates into a short-term rating of Buy. However, due to the current economic slowdown, rising competition and clouded expectations from recent acquisitions, we retain our long-term rating of Neutral for the company.

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