On Jul 11, we issued an updated research report on
Total System Services Inc.
). The company's diversified and restructured portfolio, strong
network alliances, strategic acquisitions and technical competence
augur long-term growth.
This Zacks Rank #2 (Buy) stock delivered positive earnings
surprises in 2 all the last 4 quarters. Moreover, the company's
first-quarter 2014 earnings topped the year-ago quarter figure by
about 3%, though it missed the Zacks Consensus Estimate by about
Nevertheless, the ongoing market recovery is reinstating the
confidence of consumers, which in turn is leading to an improvement
in client activity. This is reflected in strong double-digit growth
within accounts on file in the past several quarters. Growth of new
clients and retention of the existing ones, across sectors, are
reaping positive results for the company.
Moreover, Total System's strategy of diversifying through
significant acquisitions have been commendable. While NetSpend has
enabled entry into the prepaid card market, the previous
acquisitions of FNMS, TermNet and Vanguard Payment Systems have
bolstered the company's merchant acquiring portfolio. The
acquisitions of ProPay and a 75% stake in CPay are further
brightening Total System's growth prospects within the small,
medium and micro-merchants' market.
Overall, total acquisitions contributed 2.9% to top-line growth
in 2011, 1.8% in 2012 and a significant 16.7% in 2013. Management
expects further strengthening of the financials in 2014 and beyond,
perking up growth as well. Improved cash flows also indicate
timely reduction of debt, paving the way for higher shareholder
Even amid efforts to consolidate its business and enhance
operating leverage, Total System's margins are likely to be
impacted by increased price competition (particularly within the
merchant acquiring segment), regulatory challenges, exposure to
interest rate, foreign exchange volatility and a tepid earnings
guidance in the near future.
Overall, a balanced risk-reward propositionin the near term has
led to estimates hitting a plateau for 2014 and 2015. As a result,
the Zacks Consensus Estimate for 2014 and 2015 remained intact at
$1.74 and $2.02 per share, respectively, in the last 30 days. On a
year-over-year basis, earnings are expected to increase 8.8% in
2014 and 15.6% in 2015.
Key Picks in the Sector
Other stocks that look promising in the financial sector include
). All of these stocks carry the same Zacks Rank as Total
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