A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
One such stock is Fiserv, Inc. FISV, which has gained 15% in the past year compared with 11.4% rise of the industry. The Zacks S&P composite has however declined 1.3% in the said time frame.
It has an expected long-term (three to five years) earnings per share growth rate of 12%. Moreover, earnings are expected to register 12.6% growth in 2019 and 17.9% in 2020.
However, the company faces its share of headwinds. A debt-laden balance sheet may limit Fiserv’s future expansion and worsen its risk profile. Acquisitions can negatively impact its balance sheet in the form of a high level of goodwill and intangible assets. Maintaining strong and long-term client relationships is a difficult task amid stiff competition.Despite these headwinds, we believe that the company has enough positives that justify retention in investors’ portfolio.
Factors Driving Fiserv
Fiserv continues to expand its product portfolio and enhance its offerings with the help of strategic acquisitions. On Jan 16, 2019, Fiserv announced acquisition of First Data in a $22 billion all-stock deal. This is one of the biggest financial mergers in a decade and will help Fiserv emerge as one of the world’s largest payments and financial technology providers.
In 2018, Fiserv completed the purchase of Elan’s debit card processing, ATM Managed Services and MoneyPass surcharge free network for approximately $690 million. It should boost Fiserv’s payments portfolio, widen its client base and provide new solutions to enhance the value proposition for its existing 3,000 debit solutions clients. We believe that the company will continue to pursue accretive deals, which will boost its market share and customer base going forward.
Fiserv looks well poised on the back of its diversified product portfolio. In 2018, Fiserv's DNA platform signed 29 new clients and Zelle had more than 100 new clients. Given the bullish backdrop of growth, the company is optimistic about client additions in the future. Organic debit transaction grew in high single digits and total P2P transactions, including both Popmoney and Zelle, grew nearly 44% in 2018.
Volume at Zelle grew more than six times from the prior year. Mobiliti ASP subscribers recorded solid growth throughout 2018. Backed by strong demand, the company expanded its Architect implementation teams and is expected to add more clients going ahead. The company signed 26 new Architect clients in 2018.
Further, the company seems to be actively engaged in enhancing its services. In February 2019, Fiserv announced the launch of Mortgage Momentum, a digital-focused approach, aimed at enhancing the overall lending and borrowing experience. In October 2018, Fiserv had announced the launch of a flexible and interactive financial planning tool (which integrates with home office systems and streamlines manual processes) to help financial advisors operate more efficiently and collaborate with clients in their investment targets.
In September, Fiserv launched Originate, a new suite of solutions aimed at helping banks and credit unions deliver enhanced digital account opening and loan origination to customers. In August, the company upgraded its unified managed account (UMA) services to help financial institutions and advisors operate more efficiently and announced the launch of two enhanced consumer authentication solutions, step-up authentication and identity verification to help call centers counter card fraud.
The diversified product portfolio has led to a steady flow of customers, considering the rapidly changing financial services industry and increasing demand for digital banking and payment services.
Zacks Rank & Stocks to Consider
Currently, Fiserv carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector are Omnicom OMC, Robert Half RHI and Automatic Data Processing ADP. While Robert Half sports a Zacks Rank #1, Omnicom and Automatic Data Processing carry a Zacks Rank #2 (Buy).
Long-term expected EPS (three to five years) growth rate for Omnicom, Robert Half and Automatic Data Processing is 6.9%, 8.4% and 12.8%, respectively.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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