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Why Is Fiserv (FISV) Up 12.3% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for Fiserv, Inc. FISV. Shares have added about 12.3% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is FISV due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Fiserv delivered fourth-quarter adjusted earnings of $1.41 per share, which surpassed the Zacks Consensus Estimate of $1.37. The figure increased 21.6% on a year-over-year basis.

GAAP total revenues increased 5.9% year over year to $1.52 billion. Adjusted revenues grew 6.6% year over year to $1.44 billion driven by internal revenue growth, strong segmental performance and growing clientele.

2017 at a Glance

Fiserv reported adjusted earnings of $5.12 per share for 2017, which increased 16% over 2016. Adjusted revenues came in $5.423 billion, which increased 4.1% compared with 2016.

Fiserv is witnessing an increase in the adoption of DNA as well as other digital banking solutions due to its improved architecture, flexible user interface and other digital capacities. The total number of signed clients for DNA platform grew more than 30% in 2017.

The company’s Architect and Mobiliti ASP acquired 35 and 160 signed clients, respectively. Notably, subscribers for Mobiliti ASP and Architect grew 24% and 40%, respectively, in 2017.

The company witnessed more than 20% growth in debit transaction growth from Zelle and P2P transactions in 2017.

The company’s reported operational effectiveness came in $82 million for 2017, well ahead of its target which was pegged at $60 million.

Top Line in Detail

Internal revenues grew 6% owing to 7% growth in payments segment and 5% in financial segment.

Payments and Industry Products (54.9% of revenues) adjusted revenues increased 8.8% year over year to $792 million. This was driven by strong performance of card services and electronic payments business.

Financial Institution Services (46.3% of revenues) adjusted revenues were up 3.7% year over year to $668 million. This can be attributed to encouraging results from account processing and lending businesses.

Source-wise, total processing and services revenues increased 7.3% on a year-over-year basis to $1.27 billion while product revenues declined 0.4% year over year to $246 million.

Expanding Clientele

In the fourth quarter, Fiserv’s customer base continued to expand with the addition of Sallie Mae Bank, Fidelity Bank, Comercia Bank and Dollar Bank.

SunTrust, Citizens Bank and Ally Bank contributed to 90% increase in Zelle transaction, which went live in fourth quarter.

In the fourth quarter, Citizens Bank and KeyBanc signed for Dovetail real-time payment solution, which was acquired Fiserv in the last quarter.

Operating Details

Selling, general and administrative expenses (SG&A) were $313 million, which was up 6.1% compared with year-ago quarter. As percentage of revenues, SG&A declined 10 basis points (bps) on a year-over-year basis.

Adjusted operating income increased 12.9% year over year to $491 million. The adjusted operating margin of 34% expanded 190 bps on a year-over-year basis, primarily due to lower expenses.

Segment-wise, Payments and Industry Products operating margin expanded 330 bps on a year-over-year basis to 36.4%. Financial Institution Services operating margin also expanded 140 bps.

Balance Sheet & Cash Flow

As of Dec 31, 2017, cash and cash equivalents of $325 million, in line with the figure as of Sep 30, 2017. Long-term debt was $4.897 billion at the year-end compared with $4.467 billion at the end of 2016.

Fiserv generated free cash flow of $1.223 billion exceeding $1.2 billion for the first time and increased 12.82% on a year-over-year basis.

In the fourth quarter, the company repurchased 1.5 million shares for $189 million. Fiserv had 10.7 million shares remaining for repurchase at year end.

Guidance

For 2018, Fiserv expects earnings between $6.05 and $6.30 per share with growth of 22% to 27% over 2017. Internal revenue growth is projected at 4.5% for 2018.

In 2018, conversion of free cash flow is projected to be within a range of 106-111%.

Fiserv anticipates increase in operating margin and free cash flow due to new tax reform.

Adjusted effective tax rate is expected between 22% and 23% for the year 2018. Approximately $395 million of net after tax proceeds is anticipated after closing the transaction of 55% sale of Fiserv’s Lending Solution business. Notably, this is expected in first-quarter 2018.

Further, operational effectiveness for 2018 is projected at $50 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been nine revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 7.6% due to these changes.

Fiserv, Inc. Price and Consensus

Fiserv, Inc. Price and Consensus | Fiserv, Inc. Quote

VGM Scores

At this time, FISV has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable soley for momentum based on our styles scores.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise FISV has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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