It has been about a month since the last earnings report for Fiserv (FISV). Shares have added about 8.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Fiserv 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 catalysts.
Fiserv Beats Q2 Earnings and Revenue Estimates
Fiserv reported solid second-quarter 2019 results, wherein the company’s earnings and revenues beat the Zacks Consensus Estimate.
Adjusted earnings per share of 82 cents beat the consensus mark by 2 cents and increased 9.3% on a year-over-year basis. Revenues of $1.51 billion outpaced the consensus estimate by $2.3 million and increased 6.5% year over year. Adjusted revenues of $1.45 billion increased 7.1% on a year-over-year basis on the back of growth in high quality recurring revenues and new revenues from the Elan acquisition.
Revenues in Detail
Revenues at the Payments and Industry Products segment increased 9.6% year over year to $917 million. The upside was driven by solid performance of card services, electronic payments and output solutions businesses. In the reported quarter, debit transaction grew in high single digits and total P2P transactions, including Popmoney and Zelle solutions, grew more than 100%. Mobiliti ASP subscribers increased 16% to nearly 9 million. Zelle transactions nearly quadrupled and the number of live clients more than doubled sequentially. The company also signed roughly 60 clients.
Revenues at the Financial Institution Services segment increased 2.4% year over year to $604 million. The upside was driven by the company’s account and item processing businesses.
Internal revenue growth was 4% in the reported quarter, driven by strong performance across the company’s card services, electronic payments, output solutions and account processing businesses. Foreign currency movements negatively impacted internal revenue growth by 20 basis points (bps). Internal revenue growth was 5% in the Payments segment and 2% in the Financial segment.
Revenues at the Total processing and Services segment increased 10% year over year to $1.33 billion while product revenues fell 13.6% year over year to $184 million.
Adjusted operating income of $470 million was up $31 million from the year-ago quarter. Adjusted operating margin of 32.4% was flat year over year. While solid operating performance and lower investments boosted adjusted operating margin by 50 bps, decline in license revenues, Elan acquisition and continued investments negatively impacted the same by 90 bps.
Adjusted operating income at the Payments and Industry Products segment was $303 million, up 12.2% year over year. Adjusted operating margin improved 40 bps year over year to 35.4%. The improvement can be attributed to continued high quality revenue growth and gains in productivity, which was partially offset by a 60 bps negative impact due to acquisitions.
Operating income at the Financial Institution Services segment totaled $203 million, up 0.9% year over year. Operating margin declined 30 bps to 33.7% due to tough comparisons with the year-ago quarter’s strong license revenues.
Balance Sheet and Cash Flow
Fiserv exited second-quarter 2019 with cash and cash equivalents of $8.44 billion compared with $452 million at the end of the prior quarter. Long-term debt at the end of the reported quarter was $13.75 billion compared with $5.87 billion at the end of the prior quarter.
The company generated $206 million of net cash from operating activities in the reported quarter. Free cash flow was $300 million. Capital expenditures were $112 million.
Fiserv repurchased 1.6 million shares for $120 million in 2019 prior to the announcement of the First Data acquisition. The company has deferred additional share repurchase till the closure of the acquisition. As of June 30, 2019, the company had 24.3 million remaining in its current authorization.
Fiserv reaffirmed its guidance for full-year 2019. Adjusted earnings per share are expected in the range of $3.39-$3.52, which indicates 10-14% year-over-year growth after adjusting for the Lending Transaction. The company expects internal revenue growth in the range of 4.5-5%. Additionally, the company anticipates adjusted operating margin to expand around 50 bps and free cash flow conversion to be more than 105% for 2019. Full-year adjusted effective tax rate is expected between 22% and 23%. The company's 2019 guidance does not include any impact related to the proposed acquisition of First Data.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 10.19% due to these changes.
At this time, Fiserv has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Fiserv has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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