Now Is the Time to Buy Fiserv
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Fiserv (NASDAQ: FISV) provides a long list of technology solutions to clients in the financial sector, including transaction processing, electronic bill payment and presentment, business process outsourcing, document distribution services, and much more. Based on recent news surrounding Fiserv, I believe it is attempting to build itself out as a significant consulting and payment processing juggernaut. Let me explain.
Acquisitions have been key to Fiserv's success so far, and this trend has been propelling the company to new heights. Its 2007 acquisition of Checkfree has helped the company put itself in a key strategic position today. "CheckFree has defined innovation in online banking, electronic billing and payment, financial software and payment infrastructures, and the delivery of investment services technology for managed accounts," said Pete Kight, former CheckFree chairman and CEO. I think this acquisition was most critical for Fiserv, because it allowed the company to bring in nearly 3,000 more clients, and set the tone going forward.
In 2010, the company acquired AdviceAmerica, another key company that develops software for wealth advisers that can compile data from clients' accounts to provide a more thorough picture of their overall financial position. This allowed Fiserv to become much more well rounded in front-office software capabilities, previously a hole in its offerings. I believe this acquisition helped Fiserv increase its efficiency, because tighter front and back ends would help with compliance issues by saving time.
In 2011, Fiserv showed the world its financial strength when it acquired CashEdge for $465 million. Since time is money, and banks rely on speed of payments and transactions to gain and also retain clients, the company has put itself in a solid growth position. The merger is expected to provide financial institutions faster, more efficient transaction capabilities to better serve its consumers. I see this as a win situation for all involved -- financial institutions will likely be able to generate more fee revenue, and the customer will have more up-to-date, reliable account information due to faster deposits, payments and transfers. With financial institutions providing better solutions, Fiserv will be able to grow even faster.
Looking into the future, the emerging Hispanic market is under-served in Fiserv's core markets, in my opinion. Investors are not appreciating that sales growth could see a significant up-tick over the next few years as the company rolls out its online banking and payment transfer services for this emerging market. The Hispanic population is younger than the general population, which means they are likely more mobile driven -- this fits well into Fiserv's strategic market approach. I see the potential for significant margin expansion if Fiserv integrates its offerings to serve this emerging group. I expect this will happen in 2012, and the Hispanic market will comprise a larger share of the company's revenues.
The stock is currently trading at around $63 a share with analysts expecting EPS of $5.11 next year, an earnings increase of 12% y/y, for a forward P/E ratio of 12.4. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Fidelity National (NYSE: FIS) is currently trading at about $29 a share with analysts expecting EPS of $2.51 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 11.5. Total System (NYSE: TSS) is currently trading at about $21 a share with analysts expecting EPS of $1.41 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 15.2. Nielsen Holdings (NYSE: NLSN) is currently trading at about $29 a share with analysts expecting EPS of $1.82 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 15.9. The mean forward P/E of Fiserv's competitors is 14.2, which suggests that Fiserv is undervalued relative to its publicly traded competitors.
I expect Fiserv will continue to add bolt-on acquisitions. So far, the company has done a great job of integrating them. Its acquisitions are strategic, rather than purely focused on adding to earnings. As more and more companies go paperless, and the company looks to the South American banking market, I believe Fiserv will continue its growth to become a consulting and payment processing juggernaut. The emerging Hispanic market will be key to Fiserv's growth going forward.
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