On Dec 27, we reiterated electronic payment processing and
merchant acquiring services provider -
Total System Services Inc.
) at Neutral based on the company's raised financial prospects,
partially offset by higher expenses and financial leverage.
Why the Retention?
Estimates of Total System have remained stable post
third-quarter 2013 results on Oct 22. The company's earnings per
share of 46 cents and revenues $588.1 million beat the respective
Zacks Consensus Estimate of 45 cents and $588 million.
Nonetheless, the top- and bottom line outpaced the year-ago
results by 25.6% and 35.3%, respectively.
Results reflected revenue growth within North America and
merchant services, which boosted overall transaction volume and
new accounts. The inclusion of NetSpend as an operating segment
during the quarter also added to the upsurge. However, lower
revenues from the international segment, higher operating and
merger expenses coupled with higher cost of services deteriorated
the operating cash flow.
Following the release of the third-quarter results, the Zacks
Consensus Estimate for 2013 remained static at $1.62 per share in
the last 60 days. Meanwhile, the same for 2014 dipped by a penny
to $1.93 a share over the same duration.
Nonetheless, on a year-over-year basis, earnings are projected
to grow 25.5% in 2013 and 19.2% in 2014. With the Zacks Consensus
Estimate for both 2013 and 2014 showing no clarity, the company
now has a Zacks Rank #3 (Hold).
Total System's recent NetSpend acquisition has been drawing
incremental operating leverage and core synergies. The
acquisition added over 1,000 retail locations and recorded over
20% growth in direct deposit active cards and gross dollar
volumes (GDV) in the third quarter, significantly expanding
Alongside, the increasing accounts on file as well as
strategic alliances, improved pricing and technical upgrades also
validate the significant rise in guidance. However, the latest
acquisition has, at the same time, amplified financial risk for
the company on account of higher expenses and increased debt,
raising caution over margin and cash flow growth.
Other Financial Stocks That Warrant a Look
While we remain on the sidelines with regard to Total System
for some time, other better-ranked stocks in the financial sector
Alliance Data Systems Corp.
Heartland Payments Systems Inc.
). All these stocks bear a Zacks Rank #2 (Buy).
ALLIANCE DATA (ADS): Free Stock Analysis
HEARTLAND PAYMT (HPY): Free Stock Analysis
TOTAL SYS SVC (TSS): Free Stock Analysis
VISA INC-A (V): Free Stock Analysis Report
To read this article on Zacks.com click here.