EUR 850.00 For Business Accounts Only

Morningstar | After a Soft 1Q, Fiserv's Revenue Growth Should Accelerate Throughout the Year. See Updated Analyst Note from 04 May 2018

Wide-moat Fiserv’s first quarter contained few surprises. Though year-over-year adjusted revenue growth was only 3.6%, we anticipate that revenue will accelerate through out the rest of the year, which is often typical for the company. For the first quarter, the company earned $608 million in operating income, a year-over-year increase of 66.6%. However, this quarter’s earnings benefited from a $232 million gain resulting from two divestitures. Excluding this quarter’s gain, operating earnings increased only 3.5% from the previous year. Overall, we believe this quarter’s performance was a positive for Fiserv and other core processing providers. It would appear that banks' appetite for investment is increasing and technology budgets are growing at most banks. Though we’ll be adjusting our fair value estimate to reflect this quarter’s 2-for-1 share split and due to an increase in the time value of money, we've made no material changes to our expectations. Our new fair value estimate is $63 per share from $61.50.

Based on the Fiserv’s quarter and from competitor Fidelity National Information Systems, it would appear that the amount of business to chase is increasing. Specifically, management commented that as bank valuations have increased, merger and acquisitions activity has declined and banks are preferring to grow capabilities organically. This seems reasonable to us given the banks we cover are placing increasing emphasis on investing in technology. In addition, we’ve been encouraged by Fiserv’s wins within DNA. During the quarter, the company’s real-time platform recorded seven new client wins. In comparison, in last year’s first quarter the company signed five new clients. In addition, Fiserv saw 80% sequential growth in transactions across Zelle while signing Synchrony Financial and Zions during the quarter. Through the end of the first quarter, Fiserv had contracted 10 of the 35 largest banks to provide Zelle.

Finally, the company provided interesting commentary around European Commission’s Open Banking initiative and its Dovetail offering, which Fiserv acquired in the third quarter of 2017. Fiserv management anticipates significant opportunity to provide data solutions to European financial institutions to remain compliant with new technical directives. In addition, management provided additional commentary around Dovetail, which provides financial institutions with a single platform to handle all of its payment processing needs in real time. The recent acquisition has significant business in Europe and should European regulation around payments be relaxed, Fiserv may have additional opportunities to win payments business.