Thematic evaluation
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Fiserv, Inc. (FI)

September 06, 2024

Compared to: Fidelity National Information Services, Inc. (FIS) | Global Payments, Inc. (GPN) | Financial Select Sector SPDR Fund (XLF)

Our reasoning

Fiserv appears slightly undervalued based on its strong financial performance, expanding margins, and growth prospects, particularly in international markets and new technologies. While the P/E ratio suggests potential overvaluation, other metrics like EV/EBITDA and organic growth rates indicate undervaluation. The company's robust market position and strategic initiatives provide a solid foundation for future growth, outweighing the identified risks.

Key takeaways
  • Fiserv is a financially strong company with a solid track record of growth and profitability.
  • The company's revenue growth, expanding margins, and efficient operations have driven strong returns for investors.
  • Fiserv's focus on organic growth and strategic acquisitions is expected to continue to drive future growth.
  • The company's strong financial position provides it with the flexibility to invest in new technologies and expand into new markets.
  • While Fiserv faces some risks, including competition and regulatory changes, its strong financial performance and strategic initiatives position it well for continued success.
  • Fiserv's valuation is currently above the industry average, reflecting its strong financial performance and growth prospects.
  • The company's stock price has consistently outperformed the broader financial sector and its peers, indicating strong investor confidence.
  • Fiserv's future outlook is positive, with expectations for continued growth and profitability.
  • The company's strong financial position, robust cash flow generation, and strategic initiatives position it well to navigate macroeconomic challenges and capitalize on growth opportunities.
Undervalued
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Evaluation summary

  1. Company Overview:

    • Fiserv, Inc. (FI) is a leading provider of financial services technology, operating through three segments: Merchant Acceptance, Financial Technology, and Payments and Network. The company's business model revolves around providing software and services that enable financial institutions and merchants to process transactions, manage customer relationships, and optimize operations.
    • FI's product and service offerings include payment processing, point-of-sale solutions, digital banking platforms, lending solutions, and data analytics tools. The company generates revenue primarily from subscription fees, transaction fees, and software licenses.
    • FI targets a broad range of clients, including financial institutions, merchants, and corporations across various industries. The company has a significant presence in the United States and is expanding its global reach through strategic acquisitions and partnerships.
    • For comparative analysis, we will be using the Financial Select Sector SPDR Fund (XLF) as a benchmark and Global Payments, Inc. (GPN) and Fidelity National Information Services, Inc. (FIS) as industry peers.

  2. Financial Performance:

    • Fiserv has demonstrated strong financial performance in recent years, with consistent revenue growth, expanding margins, and increasing profitability.
    • Revenue has grown steadily, driven by organic growth and strategic acquisitions. The company's revenue growth has consistently outpaced the industry average, indicating a strong competitive position.
    • Gross profit margin has been consistently above 60%, reflecting the company's ability to control costs and generate high margins on its software and services.
    • Operating margin has also been expanding, driven by revenue growth and cost management initiatives.
    • Net profit margin has been consistently above 15%, indicating strong profitability and efficient operations.
    • ROA, ROE, and ROIC have all been consistently above the industry average, highlighting Fiserv's efficient use of assets and strong returns on equity and invested capital.
    • Compared to its peers, Fiserv has consistently outperformed GPN and FIS in terms of revenue growth, profitability, and return on equity.

  3. Operational Efficiency:

    • Fiserv has a strong balance sheet, with a healthy level of current assets and a consistently high current ratio, indicating a strong ability to meet short-term obligations.
    • Working capital management has been efficient, with a stable level of working capital and minimal fluctuations in accounts receivable and payable.
    • Cash flow from operations has been consistently strong, driven by robust net income growth and stable depreciation and amortization.
    • Free cash flow has also been strong and increasing, indicating a healthy cash flow generation capacity.
    • Asset quality has been good, with a low level of non-performing assets and a stable level of goodwill and intangible assets.
    • Capital expenditure has been relatively stable, with a focus on maintaining and expanding existing infrastructure.
    • Fiserv has not paid dividends in recent years, but has repurchased shares, indicating a focus on reinvesting in the business and maximizing shareholder value.
    • Compared to its peers, Fiserv has a lower debt-to-equity ratio and a lower leverage ratio, indicating a more conservative financial structure.
    • Liquidity ratios have been consistently above the industry average, indicating a strong ability to meet short-term obligations.
    • Debt-to-equity and leverage ratios have been stable, indicating a conservative approach to debt financing.

  4. Growth Opportunities:

    • Fiserv is pursuing a number of growth opportunities, including expanding into new markets, acquiring complementary businesses, and investing in new technologies.
    • The company is expanding its international presence, with plans to launch pilots in new markets, such as Brazil, Mexico, and Australia.
    • Fiserv is actively pursuing acquisitions to expand its product and service offerings and enter new markets.
    • The company is investing in new technologies, such as artificial intelligence and cloud computing, to enhance its existing solutions and develop new products.
    • Fiserv is focused on integrating its solutions across its two segments, creating a more comprehensive and integrated offering for clients.
    • The company is also expanding its financial institution partnerships, leveraging its data and intelligence capabilities to provide value-added solutions.
    • Fiserv's capital allocation strategy is focused on reinvesting in the business, acquiring complementary businesses, and returning capital to shareholders through share repurchases.
    • Management has a track record of successfully executing strategic plans, as evidenced by the company's consistent growth and profitability.

  5. Risks and Threats:

    • Fiserv faces a number of risks, including competition, regulatory changes, and economic uncertainty.
    • The company operates in a highly competitive industry, with a number of large and well-established players.
    • Regulatory changes, such as the Payment Card Industry Data Security Standard (PCI DSS), could increase compliance costs and impact the company's operations.
    • Economic uncertainty could impact consumer spending and business investment, leading to a decline in transaction volume and revenue.
    • The company's reliance on acquisitions could lead to integration challenges or overpaying for assets.
    • The company's decreasing intangible assets and total equity are potential red flags that should be monitored.

  6. Valuation Analysis:

    • Fiserv's valuation is currently above the industry average, based on metrics such as P/E ratio and EV/EBITDA.
    • The company's valuation is supported by its strong financial performance, growth prospects, and market leadership.
    • Potential catalysts for future valuation growth include continued revenue growth, margin expansion, and successful execution of strategic initiatives.

  7. Price Performance:

    • Fiserv's stock price has consistently outperformed the Financial Select Sector SPDR Fund (XLF) over various periods, including year-to-date, one-week, one-month, three-month, six-month, one-year, two-year, and three-year periods.
    • The company's stock price has also outperformed its peers, GPN and FIS, in most periods.
    • Fiserv's stock price has exhibited higher volatility than XLF, indicating that FI's stock price is more susceptible to fluctuations.
    • The company's beta has generally been below 1, indicating that it is less volatile than the overall market.

  8. Future Outlook:

    • Fiserv's management has provided positive guidance for the future, with expectations for continued revenue growth, margin expansion, and strong cash flow generation.
    • Analyst estimates for Fiserv's future performance are generally positive, with expectations for continued growth and profitability.
    • The company's strong financial position, robust cash flow generation, and strategic initiatives position it well to navigate macroeconomic challenges and capitalize on growth opportunities.

  9. Summary:

    • Fiserv is a financially healthy company with strong revenue growth, profitability, liquidity, and solvency.
    • The company's financial performance is significantly better than the industry average, indicating a strong competitive position.
    • Fiserv's focus on organic growth and acquisitions is expected to continue to drive revenue and profitability growth.
    • The company's strong financial position provides it with the financial flexibility to invest in its business and expand into new markets.
    • The company's decreasing intangible assets and total equity are potential red flags that should be monitored.
    • Fiserv's valuation is currently above the industry average, supported by its strong financial performance, growth prospects, and market leadership.
    • The company's stock price has consistently outperformed the broader financial sector and its peers, indicating strong investor confidence.
    • Fiserv's future outlook is positive, with expectations for continued growth and profitability.
    • The company's strong financial position, robust cash flow generation, and strategic initiatives position it well to navigate macroeconomic challenges and capitalize on growth opportunities.
Peer fundamentals 
Fundamentals
Insights
  • Fiserv is a financially healthy company with strong revenue growth, profitability, liquidity, and solvency.
  • The company's financial performance is significantly better than the industry average, indicating a strong competitive position.
  • The company's focus on organic growth and acquisitions is expected to continue to drive revenue and profitability growth.
  • The company's strong financial position provides it with the financial flexibility to invest in its business and expand into new markets.
  • The company's decreasing intangible assets and total equity are potential red flags that should be monitored.
Analysis
  • Revenue - Fiserv's revenue is experiencing strong growth, driven by a combination of organic growth and acquisitions. - The company's revenue growth is significantly higher than the industry average, indicating a strong competitive position. - The company's revenue growth is expected to continue in the coming quarters, as it continues to invest in its business and expand into new markets.
    • Profitability
      • Fiserv's profitability is strong and improving, as evidenced by its increasing gross profit margin, operating margin, net profit margin, return on average assets, return on average total equity, and return on average total capital.
      • The company's profitability is significantly higher than the industry average, indicating a strong competitive position.
      • The company's profitability is expected to continue to improve in the coming quarters, as it continues to control operating expenses and benefit from the growth in revenue.
    • Liquidity
      • Fiserv has a strong liquidity position, as evidenced by its increasing current assets and current ratio.
      • The company's liquidity is significantly higher than the industry average, indicating a strong ability to meet short-term obligations.
      • The company's liquidity is expected to remain strong in the coming quarters, as it continues to generate cash flow from operations.
    • Solvency
      • Fiserv's financial leverage is increasing, as evidenced by its increasing total debt to total equity ratio and debt/EBITDA ratio.
      • The company's solvency is strong, as evidenced by its increasing cash flow from operations and free cash flow margin.
      • The company's solvency is slightly higher than the industry average, indicating a strong ability to meet long-term obligations.
      • The company's solvency is expected to remain strong in the coming quarters, as it continues to generate cash flow from operations and manage its debt.
    • Operational Efficiency
      • Fiserv's operational efficiency is improving, as evidenced by its increasing return on average assets and return on average total capital.
      • The company's efficiency is significantly higher than the industry average, indicating a strong ability to generate revenue from its assets.
      • The company's operational efficiency is expected to continue to improve in the coming quarters, as it continues to invest in its business and expand into new markets.
    • Cash Flow Analysis
      • Fiserv's cash flow from operations is strong and increasing, driven by strong net income growth and stable depreciation and amortization.
      • The company's free cash flow is also strong and increasing, indicating a healthy cash flow generation capacity.
      • The company's cash flow from operations and free cash flow are significantly higher than the industry average, indicating a strong ability to generate cash flow.
      • The company's cash flow is expected to continue to grow in the coming quarters, as it continues to invest in its business and expand into new markets.
    • Risk Factors
      • The company's decreasing intangible assets and total equity are potential red flags.
      • The company's increasing financial leverage could pose a risk if the company's profitability declines.
      • The company's reliance on acquisitions could lead to integration challenges or overpaying for assets.
    • Future Outlook
      • Fiserv is well-positioned for continued growth and profitability in the coming quarters.
      • The company's strong financial position, robust cash flow generation, and strategic initiatives position it well to navigate macroeconomic challenges and capitalize on growth opportunities.
      • The company's focus on organic growth and acquisitions is expected to continue to drive revenue and profitability growth.
      • The company's strong liquidity and solvency position provide it with the financial flexibility to invest in its business and expand into new markets.
Most recent earnings report
Financial statements 
All public filings

No results available

Comparative Analysis
Benchmarks (as of 2024-09-04)
Financial Select Sector SPDR Fund (XLF)
  • Performance Comparison: Fiserv, Inc. (FI) has consistently outperformed the Financial Select Sector SPDR Fund (XLF) over various periods, including year-to-date, one-week, one-month, three-month, six-month, one-year, two-year, and three-year periods. This suggests that FI has been a strong performer relative to the broader financial sector.
  • Risk and Return Analysis: FI has generated higher annualized returns than XLF over the past three years. However, FI has also exhibited higher annualized volatility than XLF, indicating that FI's stock price is more susceptible to fluctuations. FI's maximum drawdown of 30.16% is also significantly higher than XLF's maximum drawdown of 25.81%, suggesting that FI's stock price is more vulnerable to significant declines during market downturns.
  • Risk-Adjusted Performance: FI's Sharpe Ratio has generally been lower than XLF's, indicating that FI has not been as efficient in generating returns relative to its risk. However, FI's Sharpe Ratio has shown a trend of improvement over the past three years, suggesting that its risk-adjusted returns have been improving. FI's beta has generally been below 1, indicating that it is less volatile than the overall market. However, its higher volatility compared to XLF indicates that it is still more susceptible to fluctuations than the broader financial sector.
  • Overall Assessment: FI has demonstrated strong performance relative to the broader financial sector, as evidenced by its consistent outperformance of XLF over various periods. However, FI's higher volatility and larger drawdowns suggest that it carries a higher risk profile than XLF. While FI's risk-adjusted returns have been improving, they remain lower than XLF's. Investors seeking exposure to the financial sector may consider FI as a potential growth opportunity, but they should be aware of its higher risk profile.
Peers Price History(as of 2024-09-04)
Fidelity National Information Services, Inc. (FIS)Global Payments, Inc. (GPN)
  • Performance Comparison:
    • FI has consistently outperformed GPN over the past three years, particularly in the longer-term periods. FI has also outperformed FIS in most periods, except for the YTD and 1-year periods.
    • FI's performance has been more consistent than GPN's, which has experienced significant periods of underperformance. FIS's performance has been more volatile than FI's.
  • Risk and Return Analysis:
    • FI has provided higher annualized returns than GPN and FIS over the past three years.
    • FI has exhibited lower annualized volatility than GPN and FIS, indicating a more stable performance.
    • FI's maximum drawdown of 33% is significantly lower than GPN's 56.97% and FIS's 67.88%, indicating a lower risk profile.
  • Risk-Adjusted Performance:
    • FI's Sharpe Ratio has consistently outperformed GPN's and FIS's, suggesting a better risk-adjusted return.
    • FI's beta below 1 indicates lower sensitivity to market movements compared to GPN's beta above 1 and FIS's beta around 1.
  • Overall Assessment:
    • FI has demonstrated superior performance, lower risk, and better risk-adjusted returns compared to GPN and FIS. FI's lower volatility and smaller drawdowns suggest a more stable and resilient performance.
    • FI's lower beta indicates a lower risk profile compared to GPN, which is more sensitive to market movements.
    • FI's consistent outperformance and lower risk profile make it a potentially attractive investment option compared to GPN and FIS.
Peers Fundamentals(as of 2024-06-30)
Fidelity National Information Services, Inc. (FIS)Global Payments, Inc. (GPN)
  1. Market Position and Size:
    • FI is the largest company in the peer group, with a market cap nearly four times larger than GPN and twice as large as FIS. This suggests that FI holds a dominant market position within the financial services technology industry.
    • FI's market cap is significantly larger than its peers, which is reflected in its larger revenue, EBITDA, and net income.
  2. Profitability and Efficiency:
    • FI exhibits strong profitability metrics, exceeding both peer and industry averages. Its Gross Profit Margin, EBITDA Margin, and Net Profit Margin are all significantly higher than its peers and the industry average.
    • FI demonstrates strong efficiency in generating returns, exceeding both peer and industry averages. Its Return on Average Assets, Return on Average Total Equity, Return on Average Total Capital, and Return On Average Invested Capital are all impressive.
  3. Financial Health and Stability:
    • FI exhibits a strong liquidity position, exceeding the industry average but falling slightly short of its peers.
    • FI's debt levels are higher than its peers and the industry average, suggesting that FI may be taking on more risk to fuel its growth, which could potentially impact its financial stability in the future.
  4. Valuation and Market Perception:
    • FI's valuation metrics are mixed, exceeding peers in some areas but falling short in others. Its Enterprise Value To Sales and Price To Sales Ratio are higher than its peers and the industry average, suggesting that the market values FI's revenue generation capabilities more highly than its peers and the industry.
    • FI's valuation is generally higher than its peers, suggesting that the market has a positive view of its growth prospects and profitability. However, its valuation is lower than the industry average in some areas, indicating that the market may be pricing in some risk factors.
  5. Cash Flow and Capital Management:
    • FI generates strong cash flow, exceeding its peers and the industry average. Its Net Operating Cash Flow and Free Cash Flow are significantly higher than its peers, demonstrating FI's ability to generate substantial cash from its operations.
    • FI's Total Capital Expenditure is higher than its peers, indicating that FI is investing heavily in its growth.
  6. Growth and Future Prospects:
    • FI exhibits strong growth trends, exceeding the peer group average in several key metrics. Its revenue, EBITDA, and net income have consistently grown at a higher rate than the peer group average over the past five years.
    • FI's growth rates have been consistently increasing over the 5-year period for revenue, EBITDA, and net income. This suggests that FI's growth is sustainable and likely to continue in the future.
    • FI's most recent year-over-year growth rates are higher than its 5-year CAGRs for revenue, EBITDA, and net income. This indicates that FI's growth is accelerating, suggesting that its competitive position is strengthening.
  7. Potential for Investment:
    • FI presents an attractive investment opportunity, given its strong financial performance, dominant market position, and growth potential. Its profitability, efficiency, and cash flow generation are all impressive, demonstrating its ability to manage its resources effectively and generate strong returns for its shareholders.
    • FI's consistent growth across multiple key metrics suggests that its growth is sustainable and likely to continue in the future. Its ability to scale its operations efficiently and generate strong returns for its shareholders, despite its large size, further reinforces its growth potential.
    • However, investors should be aware of FI's higher debt levels and potential for growth rate fluctuations. These factors could potentially impact its financial stability and growth trajectory in the future.
  8. Key Risks and Considerations:
    • FI's higher debt levels could potentially impact its financial stability and growth trajectory in the future.
    • FI's growth rate fluctuations, while not consistently decreasing, suggest that its growth may not be as smooth as it appears.
  9. Overall Assessment:
    • FI is a financially healthy and well-performing company with a strong competitive position in the financial services technology industry. Its profitability, efficiency, and cash flow generation are all impressive, demonstrating its ability to manage its resources effectively and generate strong returns for its shareholders.
    • However, investors should be aware of its higher debt levels and potential for growth rate fluctuations.