Total System Services Inc. Valuation – November 2015 Update $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 Most Undervalued Companies for the Defensive Investor – November 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 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 global payment solutions provider that provides services to financial and nonfinancial institutions. 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. Its operating segments include North America Services, Merchant Services, NetSpend and International Services. Through the Company’s North America Services and International Services segments, TSYS processes information through its cardholder systems to financial and non-financial institutions. The Merchant Services segment includes electronic processing and other services provided to merchants and merchant acquirers. The NetSpend segment provides GPR prepaid debit and payroll cards and alternative financial service solutions.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSS – November 2015

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 $9,876,552,712 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.75 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 37.10% Pass
6. Moderate PEmg Ratio PEmg < 20 32.30 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.22 Fail
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 2.75 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.41 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 November 2015

EPSmg $1.66
MG Growth Estimate 7.39%
MG Value $38.70
Opinion Overvalued
MG Value based on 3% Growth $24.10
MG Value based on 0% Growth $14.13
Market Implied Growth Rate 11.91%
Current Price $53.70
% of Intrinsic Value 138.76%

Total System Services Inc. qualifies 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 initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.11 in 2011 to an estimated $1.66 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 11.91% 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 below 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 Total System Services Inc. (TSS)?  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.

Stage 3: Information for Further Research

TSS Charts November 2015

Net Current Asset Value (NCAV) -$6.13
Graham Number $21.90
PEmg 32.31
Current Ratio 2.75
PB Ratio 5.22
Dividend Yield 0.74%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $896,324,000
Total Current Liabilities $325,361,000
Long-Term Debt $1,377,927,000
Total Assets $3,889,522,000
Intangible Assets $2,501,172,000
Total Liabilities $2,013,907,000
Shares Outstanding (Diluted Average) 182,431,000

Earnings Per Share History

Next Fiscal Year Estimate $2.09
Dec14 $1.72
Dec13 $1.29
Dec12 $1.29
Dec11 $1.15
Dec10 $0.99
Dec09 $1.09
Dec08 $1.26
Dec07 $1.20
Dec06 $1.26
Dec05 $0.99
Dec04 $0.76
Dec03 $0.71
Dec02 $0.64
Dec01 $0.53
Dec00 $0.45
Dec99 $0.35
Dec98 $0.28
Dec97 $0.25
Dec96 $0.20
Dec95 $0.14

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.66
Dec14 $1.39
Dec13 $1.21
Dec12 $1.16
Dec11 $1.11
Dec10 $1.12
Dec09 $1.17
Dec08 $1.17
Dec07 $1.08
Dec06 $0.97
Dec05 $0.80
Dec04 $0.67
Dec03 $0.60
Dec02 $0.51
Dec01 $0.42
Dec00 $0.35
Dec99 $0.28

Recommended Reading:

Other ModernGraham posts about the company

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
Total System Services Inc. Quarterly Valuation – February 2015 $TSS

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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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