Dj Fiserv Inc, Inst Holders, 3Q 2024 (Fi)

Fiserv, Inc. FI shares have surged 73.3% in the past year, outperforming the industry and the Zacks S&P 500 composite’s growth of 31.8% and 32.4%, respectively.

One Year Price Performance

Fiserv reported mixed third-quarter 2024 results. FI’s adjusted earnings per share (excluding $1.3 from non-recurring items) of $2.3 beat the consensus mark by 2.2% and gained 17.4% year over year. Adjusted revenues of $4.9 billion missed the consensus estimate by a slight margin but rose a tad on a year-over-year basis.

How is FI Doing?

Fiserv banks on acquisitions to expand its product portfolio. In 2023, the company acquired Skytef and Sled for $17 million, which would help increase the company's distribution network, point-of-sale (POS) and direct payment services.

In 2022, FI acquired Finxact, which improved Fiserv’s digital banking strategy to offer smooth and bespoke digital banking experiences to its clients. The company also acquired OrangeData (Yacaré), NexTable and City POS in 2022. These buyouts have boosted Fiserv’s acceptance segment.

FI’s business model couples the recurring revenues and high incremental margins of a scaled processing business with higher growth and margins. Moreover, it remains constant in providing cloud-based software and service offerings. Therefore, we anticipate the company’s adjusted revenues to grow 6.9%, 8.1% and 7.5% in 2024, 2025 and 2026, respectively.

Fiserv's current ratio (a measure of liquidity) at the end of third-quarter 2024 was pegged at 1.07, higher than the 1.06 reported in the preceding quarter. A current ratio of more than 1 indicates that the company will pay off short-term obligations efficiently.

In 2023, 2022 and 2021, Fiserv repurchased 40 million, 25.4 million and 23.3 million shares for $4.7 billion, $2.50 billion and $2.57 billion, respectively. Such actions instill investors’ confidence and drive the bottom line.

Risk Factors for Fiserv

Fiserv’s core banking products and services are part of a fiercely competitive market. The industry is becoming even more competitive with the entry of several non-banking bodies, such as internal data processing departments and data processing affiliates of large companies.

The company’s acquisition policy results in some integration risks. Buyouts can affect FI’s balance sheet in the form of goodwill and intangible assets. Moreover, frequent acquisitions create distractions for management, thus impacting organic growth.

FI’s Zacks Rank & Stocks to Consider

Fiserv Industries carries a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks in the broader Zacks Business Services sector are RB Global, Inc. RBA and Verisk Analytics VRSK.

RB Global has a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

RBA has a long-term earnings growth expectation of 10.6%. It delivered a trailing four-quarter earnings surprise of 16.3%, on average.

Verisk Analytics carries a Zacks Rank of 2 at present. It has a long-term earnings growth expectation of 12%.

VRSK delivered a trailing four-quarter earnings surprise of 4.2%, on average.

Zacks Investment Research

It has been about a month since the last earnings report for Western Union (WU). Shares have lost about 2.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Western Union due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Western Union's Q3 Earnings Beat on Branded Digital Strength

Western Union reported third-quarter 2024 adjusted earnings per share (EPS) of 46 cents, which surpassed the Zacks Consensus Estimate by 4.6%. The bottom line advanced 7% year over year.

However, total revenues declined 6% on a reported basis to $1.04 billion due to a fall in contributions from Iraq, partly offset by a well-performing Branded Digital business. Additionally, the top line beat the Zacks Consensus Estimate by 0.4%.

The quarterly results benefited from strong transaction growth in the Branded Digital business, retail foreign exchange business strength and the introduction of its media network business. A decline in overall expenses also provided some respite to margins. However, the upside was partly offset by reduced contributions from Iraq and a decline in revenues from the Consumer Services (CS) unit.

Q3 Performance of WU

Adjusted operating margin was 19.1%, which deteriorated 50 basis points (bps) year over year due to reduced contributions from operations in Iraq and strategic investments in new and expanded CS products.

Total expenses of $871.1 million slipped 2% year over year but were higher than our estimate of $830.3 million. The year-over-year decline was due to lower costs of services. The company incurred $18 million in redeployment costs.

Operating income fell 22% year over year to $164.9 million, which fell short of our estimate of $201.7 million.

Segment Analysis of WU

The Consumer Money Transfer, or CMT, segment recorded revenues of $932.2 million, which tumbled 9% on a reported basis and 8% on an adjusted basis. The metric also missed the Zacks Consensus Estimate of $949 million and our estimate of $943 million.

Operating income dipped 3% year over year to $188.3 million, which missed the consensus mark and our estimate of $189.1 million. The operating income margin of 20.2% improved 120 bps year over year.

Transactions within the CMT segment grew 3% year over year, attributable to 15% transaction growth in the Branded Digital business. Branded Digital revenues, which accounted for 25% of CMT’s third-quarter revenues, advanced 8% on a reported basis and 9% on an adjusted basis.

The CS segment’s revenues climbed 32% on a reported basis or 15% on an adjusted basis to $103.8 million. The metric surpassed the Zacks Consensus Estimate of $83.2 million and our estimate of $89 million. The year-over-year growth was driven by the expansion of the company’s retail foreign exchange business and its newly introduced media network business, along with the sustained strength of the retail money order business.

However, operating income dropped 58% year over year to $9.2 million in the unit, lower than the consensus mark and our estimate of $15.6 million. Operating income margin of 8.7% deteriorated 1,880 bps year over year.

WU’s Financial Position (as of Sept. 30, 2024)

Western Union exited the third quarter with cash and cash equivalents of $1.1 billion, which tumbled 13.5% from the 2023-end level.

Total assets of $7.7 billion fell 6.4% from the figure at 2023-end.

Borrowings were $2.6 billion, which increased 3.3% from the figure as of Dec. 31, 2023.

Total stockholders' equity of $652.7 million climbed 36.3% from the 2023-end figure.

WU generated net cash from operations of $272.3 million in the first nine months of 2024, which plunged 47.5% from the prior-year comparable period.

Western Union’s Capital Deployment

Western Union rewarded its shareholders with $239 million in dividends and share buybacks worth $177 million in the first nine months of 2024.

2024 Guidance of WU

Management continues to expect adjusted revenues to be between $4.150 billion and $4.225 billion.

Adjusted EPS is still anticipated to be in the range of $1.70-$1.80, the mid-point of which indicates a 0.6% improvement from the 2023 level. GAAP EPS is currently forecasted within the band of $1.94-$2.04, higher than the earlier guided range of $1.62-$1.72.

Adjusted operating margin is still expected to be between 19% and 21%. The metric was 19.6% in 2023.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Western Union has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Western Union has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Western Union is part of the Zacks Financial Transaction Services industry. Over the past month, Fiserv (FI), a stock from the same industry, has gained 7%. The company reported its results for the quarter ended September 2024 more than a month ago.

Fiserv reported revenues of $4.88 billion in the last reported quarter, representing a year-over-year change of +5.8%. EPS of $2.30 for the same period compares with $1.96 a year ago.

For the current quarter, Fiserv is expected to post earnings of $2.48 per share, indicating a change of +13.2% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Fiserv. Also, the stock has a VGM Score of C.

Zacks Investment Research

Thursday, November 21, 2024

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Broadcom Inc. (AVGO), Merck & Co., Inc. (MRK) and Qualcomm Inc. (QCOM), as well as a micro-cap stock, Natural Health Trends Corp. (NHTC). These research reports have been hand-picked from roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Broadcom’s shares have outperformed the Zacks Electronics - Semiconductors industry over the last two years (+208.0% vs. +157.2%). The Zacks analyst believes that strong demand for the company’s networking products are suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers. The acquisition of VMware has also been a plus.

However, a highly competitive market and a relatively low customer base have remained causes for concern. Also, Broadcom’s frequent acquisitions, like that of VMWare, have escalated integration risks.

(You can read the full research report on Broadcom here >>>)

Merck’s shares have underperformed the Zacks Large Cap Pharmaceuticals industry over the past two years (-8.8% vs. +15.2%). The Zacks analyst believes that generic competition for several drugs and rising competitive pressure, mainly on the diabetes franchise, will continue to be overhangs for the company. Also, there are concerns about Merck’s ability to grow its non-oncology business ahead of Keytruda’s loss of exclusivity later in the decade.

Yet, with continued label expansion into new indications, particularly earlier-stage launches, Keytruda is expected to see continued growth. Animal health and vaccine products have also been core growth drivers.

(You can read the full research report on Merck here >>>)

Shares of Qualcomm have underperformed the Zacks Wireless Equipment industry over the past year (+21.0% vs. +43.2%). Per the Zacks analyst, a shift in the shares among OEMs at the premium tier has reduced Qualcomm's near-term opportunity to sell integrated chipsets from its Snapdragon platform.

Aggressive competition in the mobile phone chipset market is also likely to hurt Qualcomm's profits in the future. High operating expenses and R&D costs have remained a headwind. Qualcomm is also expected to face softness in demand from China.

However, with the accelerated rollout of 5G technology, it is benefiting from investments toward building a licensing program in the mobile space. The company formed a strategic collaboration with Google to develop Generative AI digital cockpit solutions.

(You can read the full research report on QUALCOMM here >>>)

Shares of Natural Health Trends have underperformed the Zacks Consumer Products - Discretionary industry over the past year (+1.8% vs. +21.4%). Per the Zacks analyst, a declining active member base remains the biggest concern for the company. It faces liquidity challenges and high operating expenses. Dependency on key markets and intense competition pose additional risks.

However, expansion into new markets and improvement in cost management bode well.

(You can read the full research report on Natural Health Trends here >>>)

Other noteworthy reports we are featuring today include Shopify Inc. (SHOP), Fiserv, Inc. (FI) and Marsh & McLennan Companies, Inc. (MMC).

Mark Vickery

Senior Editor

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>

Today's Must Read

Keytruda to Remain Merck's (MRK) Key Top-Line Driver

Strong Demand for Networking Products Aids Broadcom (AVGO)

Qualcomm (QCOM) Poised to Gain from Transition to Edge Firm

Featured Reports

Fiserv (FI) Gains From Skytef Buyout, Amid High Competition

Per the Zacks analyst, the Skytef acquisition strengthens Fiserv's distribution network and point-of-sale. High competition from other players is an overhang.

Marsh & McLennan (MMC) Strategic Buyouts Aid, Expenses High

Per the Zacks analyst, multiple acquisitions help Marsh & McLennan expand geographically, and diversify its portfolio. However, escalating expenses continue to trim margins.

Increase in New Insurance Written Aid MGIC Investment (MTG)

Per the Zacks analyst, MGIC Investment is set to grow on higher insurance in force and annual persistency, lower claims and a strong capital position. Yet, rising expenses weigh on margin expansion.

Pre-Salt Reserves Help Petrobras (PBR), Debt Mountain Hurts

The Zacks analyst believes Petrobras' stakes in Brazil's lucrative pre-salt oil reservoirs should improve its earnings outlook, but is concerned about the company's massive $44,251 million debt load.

Customer Growth, Investment Aid Pinnacle West Capital (PNW)

Per the Zacks analyst, Pinnacle West is gaining from customer additions, which is creating demand. Investment in infrastructure and energy generation is aiding it to serve customers efficiently.

Quanta (PWR) Benefits From Strong Demand Amid Labor Woes

Per the Zacks analyst, Quanta is benefiting from robust demand for its services and accretive acquisitions. However, labor and supply chain woes are major concerns.

Ongoing Menu Expansion Aids QIAGEN (QGEN), Macro Woes Stay

Per the Zacks analyst, QIAGEN's robust R&D spending to expand the testing menu across key platforms is encouraging. Yet, macroeconomic volatilities, including the challenges in China, raise concerns.

New Upgrades

Corcept (CORT) Rides on Robust Korlym Sales Performance

Per the Zacks analyst, Corcept's sole drug, Korlym, approved for treating Cushing's syndrome, is driving the top-line. The company is also making good progress with its promising pipeline candidates.

Focus on Cost Savings to Bolster McCormick's (MKC) Margins

Per the Zacks analyst, McCormick's focus on cost-saving plans will continue to enhance its margins. The company expects its fiscal 2024 gross margin to increase by 50 to 100 basis points.

Product Rollouts & Growing Merchant Base Aid Shopify (SHOP)

Per the Zacks analyst, Shopify is benefiting from expanding merchant base driven by applications like Shopify Bill Pay, Tax platform, Collective and Marketplace Connect solutions.

New Downgrades

Decline in Vehicle Production, Rising Debt Ail Magna (MGA)

Per the Zacks analyst, lower-than-anticipated vehicle production in North America and Europe is likely to hurt Magna's top-line growth. Rising debt levels are also concerning.

High Costs, Falling Revenues Hurt Affiliated Managers (AMG)

Per the Zacks analyst, weak top-line performance, and elevated costs are major near-term headwinds for Affiliated Managers. The presence of substantial intangible assets on its balance sheet is a woe.

Spectrum Brands (SPB) Struggles With Numerous Headwinds

Per the Zacks analyst, Spectrum Brands has been witnessing geopolitical and macroeconomic uncertainty for a while. In addition, foreign currency translations are acting as deterrents.

Zacks Investment Research

It has been about a month since the last earnings report for Fiserv (FI). Shares have added about 7.7% 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 its most recent earnings report in order to get a better handle on the important drivers.

Fiserv Beat Q3 Earnings Estimates

Fiserv has reported mixed third-quarter 2024 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues missed the mark.

FI’s adjusted earnings per share (excluding $1.3 from non-recurring items) of $2.3 beat the consensus mark by 2.2% and gained 17.4% year over year. Adjusted revenues of $4.9 billion missed the consensus estimate by a slight margin but rose a tad on a year-over-year basis.

Fiserv's Quarterly Details

Processing and services’ revenues of $4.2 billion increased 5.7% on a year-over-year basis and missed our estimate of $4.3 billion. Revenues in the Product segment were $978 million, up 13.1% from the year-ago quarter’s actual and surpassing our expectation of $947.7 million.

Revenues from Merchant Acceptance were $2.5 billion, growing 9.3% year over year and meeting our estimated figure. The Financial Solutions segment reported revenues of $2.4 billion, a 4.9% increase from the year-ago quarter and meeting our estimate.

The operating margin for the Merchant acceptance segment was 37.7%, up 290 basis points (bps) on a year-over-year basis. The adjusted operating margin for the Financial Solutions segment was 47.4%, increasing 40 bps from the year-ago quarter.

Balance Sheet & Cash Flow of FI

Fiserv exited the third quarter of 2024 with cash and cash equivalents of $1.2 billion, flat with the third quarter of 2023. The long-term debt was $24.1 billion compared with $24.4 billion in the second quarter of 2024. FI generated $2.2 million in net cash from operating activities, whereas its free cash flow was $1.9 billion. Capital expenditure was $402 million. The company repurchased 7.6 million shares for $1.3 billion in the quarter.

Fiserv's 2024 Guidance

The company has updated its 2024 guidance for adjusted earnings per share to $8.73-$8.80 from $8.65-$8.80 mentioned at the end of the previous quarter. Fiserv updated its year-over-year earnings per share growth guidance to 16-17% from the 15-17% stated at the end of second-quarter 2024. FI updated its year-over-year organic revenue growth guidance from the 15-17% mentioned at the end of the previous quarter to 16-17%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Fiserv has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Fiserv has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Zacks Investment Research