Fiserv Should Profit Despite a Banking Slowdown - Barron's

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Includes: FIS, FISV, JKHY
by: Judy Weil


Barron’s says Fiserv (NASDAQ:FISV) has been unjustly dragged down during the recent financial stock meltdown. While it's true Fiserv's clients are banks, the firm services banks rather than providing banking services.

Struggling banks may cut down on IT spending, but CEO Jeff Yabuki notes customers still have to write checks and make loan payments. “The kind of processes we offer are really non-discretionary,” he says. Fiserv is benefiting significantly from its purchase last year of CheckFree for $4.4 billion, a player in the hot new market of electronic bill payments. The resultant cost cuts and newly-accessible corporations should help earnings grow 19% in 2009. The Street only values Fiserv at 12 times 2009 earnings of $4.06/share; competitors like Fidelity National Information Services (NYSE:FIS), Metavante Holdings (MV) and Jack Henry & Associates (NASDAQ:JKHY) are trading at near or higher 2009 multiples, with lower growth rates.

Fiserv controls 34% of the processing business, and CheckFree’s corporate clientele offers greater opportunities for expansion. CEO Yabuki brushes off the possible effects of a recession, staying focused on the core businesses Fiserv built up through shrewd acquisitions. A fat buyback program adds to analysts’ bullish outlook. Barron’s expects a $65+ share by 2009.

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From Fiserv's Q4 2007 Earnings Call Transcript:

Our overarching view of the economic environment is similar to that of other industry participants; it's a somewhat challenging time. That said, we have several unique advantages, which we believe give us a strong position in the current environment. First, our business model tends to center on mission critical applications and technology solutions with a strong bias towards processing. We generate significant amounts of recurring revenue, which tend to insulate us from dramatic swings up or down in results. In addition, we benefit from having a broad and deep client base, which encompasses financial institutions of all sizes. And in fact, the majority of our revenue is sourced from the smaller financial institutions, which tend to be less volatile and have stronger outsourced relationships with us.

In more difficult economic times, larger financial institutions will look for ways to gain efficiencies and often turn to outsourcing as a way to capture those benefits. We have a unique combination of technology solutions and privileged relationships across the Fiserv and CheckFree businesses, which are leading this to some interesting albeit early stage scale concept to leverage that notion. While challenging, we believe current market conditions are creating an opportunity for us to plough new ground in outsourcing and to use innovation across our wide array of products and services to further enhance our position with our clients.