We have reiterated our Neutral recommendation on
Total System Services Inc.
) based on its slow but steady operating growth. However, higher
expenses weigh on this Zacks Rank #4 (Sell) electronic payment
Total System reported third-quarter 2012 operating earnings of
32 cents per share, which came in line with the Zacks Consensus
Estimate and a couple of cents ahead of the year-ago quarter's
earnings of 30 cents per share.Total revenue stood at $468.1
million, up 1.8% year over year and 2.3% on a constant currency
Total System has been witnessing steady growth across
international and merchant acquiring services along with
improvements in transaction volumes and accounts on file.
Moreover, the company has been generating strong capital together
with modest improvement in operating cash flow.
With a current ratio of 3.1:1.0 at the end of third-quarter
2012, Total System also appears well-equipped to meet most of its
capital expenditure needs through internal funds, while also
indicating disciplined expense management. These factors in
conjunction with influential long-term contracts have impelled
management to aim the higher-end of its guidance in all growth
However, bleak signs of a radical improvement in the credit
profile amid the ongoing economic volatility and regulatory
challenges weigh on the strong growth prospects for the top-line
expansion.Even management's outlook for top line in 2012, which
is 0-2% growth over 2011, appears stressful.
Additionally, intense competition from data processing,
bankcard computer service firms and third-party software vendors
also exert pressure on several operational factors such as price,
system performance and reliability, breadth of features,
functionality, disaster recovery capabilities, business
continuity preparedness and data security.
Based on the pros and cons, the Zacks Consensus Estimate for
Total System's fourth quarter 2012 remained unchanged at 33 cents
per share over the past 60 days, due to the lack of any estimate
revision. This reflects an upside of 5.6% from the year-ago
Meanwhile, over the past 60 days, the 2012 estimate remained
unchanged as well. Consequently, the Zacks Consensus Estimate for
2012 stands at $1.29 per share, up 12.5% over 2011. This estimate
lies slightly over the company's guidance of $1.26-$1.28 per
Other Stocks to Consider
While we maintain a neutral stance on Total System, other
payment processors such as
Heartland Payments Inc.
) are worth considering. Both these stocks carry a Zacks Rank #1
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