Fiserv Showing Strong Growth

Fiserv reported 3rd Q earnings per share of $0.63, exceeding The Street consensus estimate. Total revenues grew 14.3%. FISV performed better than expected, with internal growth accelerating strongly to 6% from 3% in the second quarter and margins increasing 90 basis points to 23.9%. Additional points:

* Performance of Health Plan Management and Investment Support Services, however, was somewhat disappointing, suggesting that these businesses continue to face significant headwinds.

* Financial Institution Outsourcing [FIO] internal growth increased sequentially as expected but rose more than The Street expected at 6%, adjusted for customer reimbursements. Margins in FIO improved to 23.9%. Since margin declines in this business unit have been a source of concern to investors, we believe this is a positive result.

* FIO results were essentially in line with expectations, with internal growth of 6%. Operating margins in FIO expanded 90 basis points to 23.9%, excluding customer reimbursements. This is result of increased revenues from payments business, strong results in core bank processing, and operational efficiencies.

* Management updated its full year 06 guidance for earnings on continuing operations. FISV has increased the lower end of the range from $2.48 to $2.51. They are maintaining the upper end of the range at $2.54, so the updated estimate anticipates earnings from continuing operations to be within the range of $2.51 to $2.54.

* FISV also mentioned that it expects adjusted internal revenue growth rates to be in the mid-single digits for the FIO and ISS segments and in the low single digits in the HPM segment for 06.

* Management also mentioned on the conference call that it expects to complete its current repurchase authorization of 3.2 million shares as of September 30, 2006, in the near future.

* I believe the company can achieve better-than-15% earnings per share growth and that despite recent strong performance valuation remains attractive in view of the level and visibility of this growth.