On February 13, we reiterated our Neutral recommendation on
Total System Services Inc.
) based on the company's fourth quarter results and a fair
guidance for 2013. However, increasing operating expenses amid
intense competition pose some risk on the operating leverage.
Why the Reiteration?
Estimates have remained stagnant for this electronic payment
service provider since it reported the fourth quarter results on
January 22. Operating earnings of 32 cents per share were a penny
below the Zacks Consensus Estimate and 3.4% higher than the
year-ago quarter's earnings of 31 cents per share.
Total revenues for the reported quarter were $479.1 million,
up 1.5% year over year but lagged the Zacks Consensus Estimate of
$484.0 million. Nevertheless, management's top line expectation
of 5-7% and low double-digit earnings growth outlook for 2013
validate a slow but steady growth momentum.
Following the fourth quarter results, the Zacks Consensus
Estimate for 2013 and 2014 have been maintained at $1.44 per
share and $1.64 a share, respectively. With the Zacks Consensus
Estimates showing a slight upward pressure on the stock from 2013
to 2014, the company now has a Zacks Rank #2 (Buy).
A Neutral Approach
Total System's top and bottom line have improved modestly in
the past 2 years. The company's risk-free balance sheet along
with modest liquidity provides viable scope for healthy capital
Also, its pipeline of international opportunities and
improvement in client activity should help stimulate
above-average growth and higher accounts on file. The high
profile long-term acquiring services and technology contracts
with leading global organizations will continue to boost its
business portfolio and top-line growth. An optimistic guidance
for 2013 further raises confidence and supports a long-term
While we believe that the worst is over for this company,
escalated expenses tend to outpace top-line growth, thereby
limiting the desired upside in margins. Alongside, a higher
backlog of accounts and risks related to intense competition,
interest rates and foreign exchange fluctuation create a
challenging operating environment for the company.
Other Stocks to Consider
While we continue to monitor the future developments of Total
System, other stocks in the financial sector that are performing
Global Payments Inc.
). All of these carry a Zacks Rank #2 (Buy).
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