On Oct 15, we downgraded electronic payment processing and
merchant acquiring services provider -
Total System Services Inc.
) - to Neutral based on its latest acquisition and raised
financial prospects, partially offset by higher expenses and
Why the Downgrade?
Estimates of Total System have remained stable ahead of its
third-quarter 2013 results, which are scheduled to be released
after the closing bell on Oct 22. In the last 30 days, the Zacks
Consensus Estimate for 2013 remained at $1.61 per share, while
that for 2014 rose by a penny to $1.95 a share.
Nonetheless, the current estimates reflect 25% year-over-year
growth in 2013 and 21.2% upsurge in 2014. With the Zacks
Consensus Estimate for both 2013 and 2014 rising steadily, the
company now has a Zacks Rank #2 (Buy).
On Jul 23, Total System reported second-quarter 2013 operating
earnings per share of 34 cents, which beat the Zacks Consensus
Estimate by a penny but fell short of the year-ago number by a
cent. However, the Zacks Consensus Estimate for third-quarter
2013 is pegged at 45 cents per share, which is expected to
escalate 39.4% over the prior-year quarter.
Total System's recent NetSpend acquisition is expected to draw
incremental operating leverage and core synergies. This is also
reflected by the significant rise in guidance. Conversely, the
acquisition has also amplified financial risk from higher
expenses and increased debt, raising caution over margins' growth
in the near term.
Overall, we believe Total System should benefit from a healthy
impact of the regulations, which should further help recover
client accounts and augment long-term contracts, thereby
instilling shareholder confidence. Moreover, strategic
acquisitions, alliances and technical competence are expected to
consistently drive long-term growth.
Other Financial Stocks That Warrant a Look
While Total System slight improvement over the near term,
other outperformers in the financial sector including
), each carrying a Zacks Rank #2 (Buy), appear impressive.
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TOTAL SYS SVC (TSS): Free Stock Analysis
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XOOM CORP (XOOM): Free Stock Analysis Report
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