On Feb 19, Zacks Investment Research downgraded
Total System Services Inc.
) by a notch to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Total System has been experiencing declining earnings
estimates on the back of dismal market trends following
fourth-quarter 2013 results. Additionally, this electronic
payment processing and merchant acquiring services provider
underperformed the 6-month S&P 500 index, which clocked
growth of 11.2% against Total System's 5.5%.
On Jan 28, Total System reported fourth-quarter 2013 operating
earnings per share of 44 cents, which missed the Zacks Consensus
Estimate of 45 cents but beat the prior-year quarter equivalent
of 37 cents.
Although top-line growth of 25.4% year over year drove the
results, most of it was fueled by the NetSpend acquisition, while
organic growth remained tepid on account of lower revenues from
merchant acquiring services. Also, an upsurge in costs of
services, operating and merger expenses substantially hampered
results, thereby deteriorating the operating cash flow.
Furthermore, despite incremental revenues from the latest
acquisitions, management expects operating earnings per share to
grow in the band of 11-13% in 2014, noticeably lower than 18%
growth recorded in 2013. This implies higher expense flow, which
can restrict the desired upside in margins and cash flow.
At such a juncture, higher debt obligations adversely affect
the financial leverage, further raising risks on healthy capital
deployment. Alongside, risks related to regulatory challenges and
integration of newly expanded business amid intense competition
and foreign currency fluctuations cast a shadow on growth
Meanwhile, the Zacks Consensus Estimate for 2014 dropped 5.9%
to $1.82 per share in the last 30 days. Even the same for 2015
fell 5.7% to $2.09 during the same period.
Meanwhile, the Most Accurate estimate for Total System's 2014
and 2015 earnings stands at $1.79 and $2.05 a share, resulting in
of -1.7% and -1.9%, respectively. No upward revision in estimates
was witnessed for both the years.
Other Stocks to Consider
While we prefer to avoid Total System for the time being, some
better-ranked financial stocks in the industry are
Global Payments Inc.
Verifone Systems Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
GLOBAL PAYMENTS (GPN): Free Stock Analysis
VERIFONE SYSTMS (PAY): Free Stock Analysis
TOTAL SYS SVC (TSS): Free Stock Analysis
VANTIV INC-A (VNTV): Free Stock Analysis
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