Information Technology Stocks

Total System Services Inc Valuation – May 2016 $TSS

Benjamin 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 10 Companies Benjamin Graham Would Invest In Today – March 2016.  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 showing a specific look at how Total System Services Inc (TSS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Total System Services, Inc. (TSYS) is a payment solutions provider that provides services to financial and nonfinancial institutions. The Company’s segments include North America Services, Merchant Services, NetSpend and International Services. The Company also provides processing services, acquiring solutions, related systems and integrated support services to merchant acquirers and merchants. In addition, it provides general purpose reloadable (GPR) prepaid and payroll cards, and alternative financial service solutions to the underbanked and other consumers. The Company’s Merchant Services segment provides third party processing services to merchant acquirers and Independent Sales Organizations (ISOs) mainly in the United States. The Company’s NetSpend segment provides GPR prepaid debit and payroll cards, and convenience checks. The Company’s services and solutions include Issuing Services, Acquiring Services, Prepaid Solutions and Merchant Solutions.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSS – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,828,842,536 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 8.55 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 78.37% Pass
6. Moderate PEmg Ratio PEmg < 20 26.43 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.07 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 8.55 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.35 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

TSS value Chart May 2016

EPSmg $2.01
MG Growth Estimate 10.94%
MG Value $61.18
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $29.20
MG Value based on 0% Growth $17.12
Market Implied Growth Rate 8.97%
Current Price $53.24
% of Intrinsic Value 87.02%

Total System Services, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.16 in 2012 to an estimated $2.01 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 8.97% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Total System Services, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

TSS Charts May 2016

Net Current Asset Value (NCAV) -$5.89
Graham Number $25.06
PEmg 26.43
Current Ratio 8.55
PB Ratio 5.07
Current Dividend $0.40
Dividend Yield 0.75%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $2,426,434,000
Total Current Liabilities $283,697,000
Long-term Debt $2,887,247,000
Total Assets $5,423,933,000
Intangible Assets $2,505,724,000
Total Liabilities $3,502,392,000
Shares Outstanding (Diluted Average) 182,807,000

Earnings Per Share History

Next Fiscal Year Estimate $2.66
12/1/2015 $1.97
12/1/2014 $1.72
12/1/2013 $1.29
12/1/2012 $1.29
12/1/2011 $1.15
12/1/2010 $0.99
12/1/2009 $1.09
12/1/2008 $1.27
12/1/2007 $1.20
12/1/2006 $1.26
12/1/2005 $0.99
12/1/2004 $0.76
12/1/2003 $0.71
12/1/2002 $0.64
12/1/2001 $0.53
12/1/2000 $0.44
12/1/1999 $0.35
12/1/1998 $0.28
12/1/1997 $0.25
12/1/1996 $0.21

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.01
12/1/2015 $1.62
12/1/2014 $1.39
12/1/2013 $1.21
12/1/2012 $1.16
12/1/2011 $1.11
12/1/2010 $1.12
12/1/2009 $1.18
12/1/2008 $1.18
12/1/2007 $1.08
12/1/2006 $0.97
12/1/2005 $0.80
12/1/2004 $0.67
12/1/2003 $0.60
12/1/2002 $0.51
12/1/2001 $0.42
12/1/2000 $0.34

Recommended Reading:

Other ModernGraham posts about the company

Total System Services Inc. Valuation – November 2015 Update $TSS
Total System Services Inc. Analysis – August 2015 Update $TSS
30 Companies in the Spotlight This Week – 5/23/15
Total System Services Inc. Quarterly Valuation – May 2015 $TSS
34 Companies in the Spotlight This Week – 2/7/15

Other ModernGraham posts about related companies

Qualcomm Inc Valuation – February 2016 $QCOM
Motorola Solutions Inc Valuation – February 2016 Update $MSI
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
Akamai Technologies Inc Valuation – January 2016 $AKAM
Infosys Ltd Valuation – January 2016 Update $INFY
Motorola Solutions Inc Valuation – February 2016 Update $MSI
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
Akamai Technologies Inc Valuation – January 2016 $AKAM
Infosys Ltd Valuation – January 2016 Update $INFY
Total System Services Inc. Valuation – November 2015 Update $TSS

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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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