Tag: WaFd

Fiserv (FI): The Hidden Blue Chip Gem in Fintech

Posted on by The INO.com Team

With a $90.21 billion market cap, Fiserv, Inc. (FI) provides payments and financial technology services globally. Over the past few years, the broader fintech sector has struggled due to banks’ reluctance to experiment and interest rate hikes impacting payment volumes.

However, Fiserv stands out as a strong performer as the company has long-standing contracts with major banks. FI’s stock has surged more than 80% over the past five years. Moreover, the stock has gained nearly 25% over the past six months.

Further, the fintech company has secured significant attention from institutions lately. Institutions own around 92.5% of FI. JPMorgan Chase & Co, Vanguard Group Inc, Nuveen Asset Management, LLC, Charles Schwab Investment Management Inc, Envestnet Asset Management Inc, Scharf Investments, LLC, DSM Capital Partners LLC, and UBS Group AG bought more FI stock. 

Institutional investors generally conduct in-depth research and analysis before investing, which can be viewed as a vote of confidence in FI’s potential. They are known to have the resources and specialized knowledge for extensively researching investment opportunities that are not open to retail investors.

So, the increasing buying activity from several institutions reflects an optimistic sentiment toward FI’s performance and growth outlook.

Let’s analyze FI’s latest earnings report and other factors driving institutional interest in this payment processing company.

Robust First-Quarter 2024 Results

For the first quarter that ended March 31, 2024, FI’s revenue increased 7.4% % year-over-year to $4.88 billion. The company’s processing and services revenue rose 8.9% year-over-year. Its adjusted operating income was $1.63 billion, up 13.4% from the previous year’s quarter.

In addition, Fiserv’s adjusted net income and earnings per share came in at $1.12 billion and $1.88, increases of 12% and 19% year-over-year, respectively. Further, as of March 31, 2024, the company’s total current assets stood at $37.09 billion, compared to $34.81 billion as of December 31, 2023.

During the first quarter, the company repurchased 10.2 million shares of common stock for $1.5 billion.

Regarding outstanding financial performance, Frank Bisignano, Chairman, President, and Chief Executive Officer of Fiserv, added, “We continued to execute on our resilient business model by improving productivity, delivering innovative products and services, and cross-selling into our diverse and high-quality client base.”

Upbeat Full-Year 2024 Outlook

For the fiscal year 2024, FI affirmed the organic revenue growth outlook of 15% to 17%. The company also raised its earnings per share guidance to $8.60 to $8.75, representing a growth of 14% to 16% for 2024.

“Fiserv remains committed to our virtuous cycle of investment, revenue growth, operating leverage, capital return and re-investment for further growth, reinforced with a focus on clients, operational excellence, and a strong balance sheet,” stated CEO Frank Bisignano.

He added, “This proven model, along with our strong first quarter results, led us to raise our 2024 adjusted earnings per share outlook for the full year.”

Favorable Analyst Estimates

Analysts expect FI’s revenue to increase 8.2% year-over-year to $4.88 billion for the second quarter ending June 2024. The consensus EPS estimate of $2.10 for the ongoing quarter indicates an improvement of 16% year-over-year. Moreover, Fiserv has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Furthermore, FI’s revenue and EPS for the fiscal year (ending December 2024) are estimated to grow 7.5% and 15.6% year-over-year to $19.39 billion and $8.70, respectively. For the fiscal year 2025, Street expects the company’s revenue and EPS to increase 8.7% and 16% from the previous year to $21.08 billion and $10.09, respectively.

Recent Strategic Partnerships and Product Launches

On May 8, FI announced that WaFd, Inc. (WAFD) selected its CashFlow CentralSM to bolster its small business banking offerings. This move will allow WaFd Bank small business customers to access a full range of capabilities to handle incoming and outgoing payments through their digital banking relationship, streamlining their financial management and saving them time.

CashFlow Central, developed by Fiserv in collaboration with prominent B2B payments-as-a-service platform provider Melio, is a unified digital payment and cash flow management platform. This solution enables small businesses to send electronic invoices, accept payments via ACH transfers or credit cards, digitize supplier invoices, and make payments to billers and suppliers via bank accounts or credit cards.

Also, on April 17, FI launched the Clover Kiosk and an enhanced Clover Kitchen Display System to enable restaurants to streamline operations and improve the customer experience. Designed for seamless integration with each other and additional Clover software and hardware, these solutions facilitate end-to-end order management with up to 40% lower cost of ownership than competitive offerings.

In February, Fiserv partnered with Genesis Bank, one of the two diverse multiracial Minority Depository Institutions (MDIs) in the nation, to boost economic empowerment and create an optimistic impact in local communities. Under this collaboration, small businesses, mainly in low-to-moderate income (LMI) communities served by Southern California-based Genesis Bank, will have access to customized technology packages.

These bundles, specifically designed to tackle these businesses' challenges, offer access to select Clover point-of-sale (POS) technology from Fiserv with no or low entry costs and discounted subscription fees.

Solid Profitability

FI’s trailing-12-month EBITDA margin of 42.20% is 85.2% higher than the 22.80% industry average. Similarly, the stock’s trailing-12-month levered FCF margin of 20.34% is 15.7% higher than the industry average of 17.58%. Its trailing-12-month CAPEX/Sales of 7.56% is significantly higher than the industry average of 1.94%.

Additionally, the stock’s trailing-12-month ROCE and ROTA of 11.01% and 3.50% favorably compared to the industry averages of 10.58% and 1.05%, respectively.

Bottom Line

FI extended its robust revenue growth and margin expansion into 2024, resulting in a 19% year-over-year earnings per share growth during the first quarter. Following an outstanding financial performance, the company raised its adjusted EPS outlook to $8.60-$8.75 for 2024.

Fiserv maintains its resilient business model by enhancing productivity, introducing innovative products and services in areas such as account processing and digital banking, payments, and merchant acquiring and processing, and expanding sales opportunities within its diverse and high-quality client base.

Moreover, FI was named one of Fortune® America’s Most Innovative Companies for the second consecutive year. This designation highlights organizations leading the way in innovation in the U.S. Each pillar, including product innovation, process innovation, and innovation culture, contributed equally to the overall innovation score.

According to Statista, the digital payments market’s total transaction value is expected to reach $3.07 trillion in 2024. Digital Commerce will be the market’s largest segment, with a projected total transaction value of $2.26 trillion this year. Further, the total transaction value is estimated to show a CAGR of 10.7%, resulting in a total of $4.62 trillion by 2028.

The digital payments industry’s promising outlook should bode well for FI.

In addition, analysts are bullish about Fiserv’s growth trajectory. Citigroup analysts raised the price target for FI stock from $171 to $180 while maintaining a Buy rating. Also, TD Cowen adjusted the price target to $175 from $167, reaffirming a Buy rating on the stock. In line, analysts at UBS Group maintained a Buy rating while increasing the price target from $170 to $185.

Several factors, such as solid financial performance, leading position in the fintech industry, and bright growth prospects, have driven a strong level of institutional interest in FI, as reflected by the fact institutions own more than 92% of the stock.

Given this backdrop, it could be wise to invest in this stock for substantial gains.

Earnings Season Preview: What Lies Ahead for Banking Stocks?

Posted on by The INO.com Team

Financial institutions offer various consumer financial services, encompassing current and savings accounts, online payment options, credit and debit card facilities, residential and commercial lending options, insurance coverages, and investment portfolio management. Robust consumer spending and business investment activities propel demand for these financial services.

The third-quarter earnings season will kick off with big banks this week. As banking and finance sector giants JPMorgan Chase & Co. (JPM), BlackRock, Inc. (BLK), WaFd, Inc (WAFD), and Unity Bancorp, Inc. (UNTY) prepare to release their results, we look at what analysts expect and what could shape their prospects.

Before delving into the financial prospects of these stocks, let’s discuss the factors influencing the industry’s trajectory.

The financial sector, particularly the banking segment, has demonstrated signs of stabilization following the turmoil induced by the collapse of the regional banks. The recovery coincides with the Federal Reserve's benchmark interest rate hikes to its peak in over two decades, aiming at alleviating inflationary pressures.

In September, record-breaking 334,000 nonfarm payroll additions surpassed economists' forecasts and brought increased potential for further rate increases. This comes as an overheated job market must be balanced by cooling inflation to achieve a desirable economic "soft landing." Higher interest rates could prove advantageous to banks, typically resulting in higher net interest income.

However, the market sentiments surrounding banking stocks have been negatively impacted by the downgrades and warnings issued by top rating agencies — Moody's and Fitch. These actions have gravely spotlighted investors' anxieties concerning the industry's stability and future. Similarly, S&P Global reduced its credit ratings and outlook for several U.S. regional banks, marked by their considerable commercial real estate (CRE) exposure.

This action could lead to increased borrowing costs for the banking sector, battling to recover from previous upheavals. Furthermore, with the Fed’s interest rate hikes raising borrowing costs, banks find themselves in a situation where they must offer higher interest on deposits to retain customers considering more lucrative alternatives.

In the forthcoming weeks, the financial sector, representing more than 40% of the S&P 500 members, is set to dominate market discourse, as it is slated to reveal third-quarter earnings. According to a Factset article, the sector is predicted to record the fourth-highest quarterly earnings growth rate at 8.7% among 11 sectors.

The banking industry is anticipated to report the third-highest annual earnings growth rate at 4%. Diversified Banks are expected to achieve an earnings growth of 7% on a sub-industry level, whereas Regional Banks may report a 15% decline in earnings. Within the Capital Markets industry, Asset Management and Custody Banks are projected to record earnings growth.

Let’s now comprehend some factors that could influence the featured stocks in the near term:

JPMorgan Chase & Co. (JPM)

JPM has proven its robustness and keen strategic foresight in the past few years, preparing tactically for a high-interest rate environment by stockpiling cash starting in 2021. Their fiscal prudency awarded them an advantageous position to acquire First Republic Bank under desirable terms following its seizure by federal regulators earlier this year.

The second quarter saw a surge in JPM's revenue and net income, boosted by higher interest rates and the well-timed acquisition of First Republic Bank. These successful endeavors are testaments to the bank's competent management and foresight.

Looking forward to the imminent week, JPM is expected to exceed expectations with its third-quarter earnings – a result of excellent performance across its primary business sectors.

According to data compiled by Bloomberg, the banking giant stands ready to record the fastest earnings-per-share growth compared to other major U.S. investment banks this reporting season.

The slump in trading revenues and investment banking fees was offset by the bank's net interest income increase of 27% during the quarter. According to Piper Sandler, despite persistently high interest rates, the bank might surpass its annual net interest income guidance.

For the fiscal third quarter ending September 2023, JPM’s revenue and EPS are expected to increase 20.2% and 24.8% year-over-year to $39.31 billion and $3.89, respectively.

Beyond these impressive forecasts, it is noteworthy that JPM surpassed consensus revenue and EPS estimates in each of the trailing four quarters.

BlackRock, Inc. (BLK)

BLK is recognized globally as a top-tier provider of investment, advisory, and risk management solutions, risks facing adversity due to escalating interest rates. An upward trajectory in interest rates stands to diminish the demand for bonds and fixed-income securities, which serve as substantial income generators for BLK.

As interest rates climb, bond prices take a downturn, prompting investors to explore other asset classes or seek out richer yields in alternative locations. This scenario can potentially depress the value of BLK’s assets under management (AUM) and any fees garnered from managing these assets.

Further concerning is that BLK leans heavily on debt to fuel its operations and fund acquisitions. As of June 30, 2023, the firm registered $7.96 billion in total long-term borrowings. For the six months that ended June 30, 2023, BLK paid approximately $89 million in interest on long-term notes.

The firm's EPS is projected to take an 11.5% year-over-year plunge to $8.45 for the fiscal third quarter ending September 2023 as it grapples with decelerating institutional flows and the impacts of foreign-currency headwinds.

On a brighter note, the company’s revenue for the same quarter is forecasted to increase 5.6% year-over-year to $4.55 billion. The company topped consensus EPS estimates in the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.

WaFd, Inc (WAFD)

Regional bank WAFD offers various financial products and services, encompassing current and savings accounts, mortgages, loans, and investments.

A potential rise in interest rates could boost the bank’s net interest income, as evidenced by its third-quarter net interest income results that reached $168.70 million, marking an 11.2% year-on-year increase.

Over the past three years, the bank has achieved impressive growth, with EPS escalating by 18.3% CAGR. If WAFD maintains this trajectory, shareholders should be thoroughly satisfied.

Furthermore, over the past three years, the company's revenue and net interest income expanded at CAGRs of 9% and 13.8%, respectively, highlighting the solid caliber of WAFD’s growth.

One point of concern lies in the bank's substantial reliance on debt. For the last reported quarter that ended June 30, 2023, WAFD reported borrowings of $3.60 billion at an interest rate of 3.76%.

Moreover, for the fiscal fourth quarter ending September 2023, WAFD’s revenue is anticipated to decline 4.3% year-on-year to $180 million, while EPS is expected to decline 16.2% year-over-year to $0.90.

Unity Bancorp, Inc. (UNTY)

UNTY, a community-oriented bank in Clinton, New Jersey, is well-positioned to capitalize on its robust fundamentals, solid loan and deposit balances, and diverse fee-income sources.

It is a conservatively managed organization that has constantly been acknowledged as a top-tier community bank. Although not exempt from the challenges faced by the broader banking sector, UNTY seems well-prepared to confront these difficulties while retaining the confidence and favor of the communities it serves.

The bank's revenue and net interest income expanded at CAGRs of 14.8% and 17%, respectively, over the past three years, justifying its strong growth trajectory.

UNTY's main earnings source, net interest income, decreased marginally sequentially by $0.4 million to $23.5 million. The decline was due to the cost of interest-bearing liabilities rising faster than the yield of interest-earning assets, causing a slight decrease in net interest margin to 4.04%.

Mixed analyst estimates about the company’s potential are evident as UNTY’s EPS is expected to decline 4.3% year-on-year to $0.89, while its revenue is expected to increase 1.2% year-over-year to $25.15 million for the fiscal third quarter ending September 2023. Moreover, the stock has topped the consensus EPS and revenue estimates in three of the trailing four quarters.

Furthermore, UNTY experiences rapid growth and has strategically chosen to pay out a minimal fraction of its earnings as dividends to shareholders, opting instead to reinvest back into the business. This approach promises to generate significant value for investors over time. Over the past three and five years, UNTY's EPS has grown at CAGRs of 22.4% and 19.2%, while dividend payouts grew at 13.7% and 12.6% over the same periods.