We remain Neutral on Fiserv Inc. (FISV) primarily due to a volatile macroeconomic environment. The company is very much susceptible to inflation, which would impact costs. The continued consolidation within the banking and financial services industry is expected to negatively impact the company’s revenue growth.
Moreover, the company’s core banking products and services are part of a highly competitive market. It faces competition from companies such has Fidelity (FIS), Mastercard (MA) and Global Payments (GPN) to name a few. Moreover, new market entrants also pose competitive threats. Hence, volatile macro-economic factors, regulatory challenges and sluggish fundamentals remain the headwinds going forward.
Nonetheless, Fiserv has strengthened its position in the financial and payment solutions business, primarily based on its integrated, wide-ranging suite of products. We believe that high operating efficiency is the key reason for the company’s ever-increasing banking and financial services clientele.
We expect the company to experience strong organic revenue growth over the long term, driven by its broad and diverse customer base and continued technology upgrades. The company continues to diversify its product portfolio using XML, Web services and other industry software programming standards and realign itself to capitalize on the most promising growth opportunities from both geographic and product development standpoints.
Moreover, various strategic partnerships have enabled Fiserv to expand its presence in the industry. The company confirmed winning a number of contracts from various financial institutions during 2012. We believe new venture deals should help promote growth of the company going forward.
Last but not the least, the company’s strong balance sheet along with a modest cash position and cash flow generation provide viable scope for share repurchase from time to time. These factors make the stock quite attractive in the long term.
Currently, Fiserv has a Zacks #3 Rank (Hold).
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