Commentary

Fiserv Inc. Analysis – 2015 Annual Update $FISV

200px-Fiserv_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – May 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis giving a specific look at how Fiserv Inc. (FISV) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Fiserv, Inc. (Fiserv) is a global provider of financial services technology. The Company provide account processing systems, electronic payments processing products and services, such as electronic bill payment and presentment, card-based transaction processing and network services, ACH transaction processing, account-to-account transfer products, and person-to-person payments, internet and mobile banking systems, and related services including document and payment card production and distribution, check processing and imaging, source capture systems, and lending and risk management products and services. The Company’s operations consisted of the Payments and Industry Products (Payments) segment and the Financial Institution Services (Financial) segment. It serves approximately 14,500 clients worldwide, including banks, thrifts, credit unions, investment management firms, leasing and finance companies, retailers, merchants and government agencies.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $80.31
MG Value $98.26
MG Opinion Fairly Valued
Value Based on 3% Growth $42.70
Value Based on 0% Growth $25.03
Market Implied Growth Rate 9.39%
Net Current Asset Value (NCAV) -$19.01
PEmg 27.27
Current Ratio 1.00
PB Ratio 6.06

Balance Sheet – March 2015

Current Assets $1,498,000,000
Current Liabilities $1,501,000,000
Total Debt $3,757,000,000
Total Assets $9,335,000,000
Intangible Assets $7,178,000,000
Total Liabilities $6,117,000,000
Outstanding Shares 243,000,000

Earnings Per Share

2015 (estimate) $3.77
2014 $2.98
2013 $2.44
2012 $2.22
2011 $1.64
2010 $1.64
2009 $1.53
2008 $1.75
2007 $1.30
2006 $1.27
2005 $1.35

Earnings Per Share – ModernGraham

2015 (estimate) $2.94
2014 $2.42
2013 $2.05
2012 $1.83
2011 $1.61
2010 $1.56

Dividend History
Fiserv Inc. does not pay a dividend.

Conclusion:

Fiserv Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, lack of dividends, and high PEmg and PB ratios, while the Enterprising Investor is concerned with the level of debt relative to the current assets as well as the lack of dividends.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.61 in 2011 to an estimated $2.94 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 9.39% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value falling within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Fiserv Inc. (FISV)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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