Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 5 Lowest PEmg Companies for EnterprisingÂ Investors.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a specific look at how Fiserv Inc. (FISV)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance):Â Fiserv, Inc. (Fiserv) is a global provider of financial services technology. The Company serves approximately 16,000 clients worldwide, including banks, thrifts, credit unions, investment management firms, leasing and finance companies, retailers, merchants and government agencies. The Company’s operations are reported in the Payments and Industry Products (Payments) and Financial Institution Services (Financial) business segments. The Company provides account processing systems; electronic payments processing products and services , such as electronic bills 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.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- 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
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- 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
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â FAIL
- Earnings growth – EPSmg greater than 5 years ago – PASS
|Value Based on 3% Growth||$36.58|
|Value Based on 0% Growth||$21.44|
|Market Implied Growth Rate||7.62%|
|Net Current Asset Value (NCAV)||-$17.82|
Balance Sheet – 3/31/2014
Earnings Per Share
Earnings Per Share – ModernGraham
Fiserv Inc.Â is not suitable for either the Defensive Investor or the Enterprising Investor. Â The Defensive Investor has concerns with the low current ratio, the lack of dividend payments, and the high PEmg and PB ratios. Â The Enterprising Investor is concerned with the high level of debt relative to the current assets and the lack of dividend payments. Â As a result, value investors following the ModernGraham approach should explore other opportunities through a review of ModernGraham’s valuation of Capital One Financial (COF) and ModernGraham’s valuation of Visa Inc. (V). Â From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $2.52 for 2014. Â This level of demonstrated growth outpacesÂ the market’s implied estimate of 7.62% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value aboveÂ the market price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. Â What do you think? Â What value would you put on Fiserv Inc. (FISV)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Disclaimer: Â The author did not hold a position in Fiserv Inc. (FISV) or any other 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; this article is not affiliated with the company in any manner.