Is Fiserv Stock A Buy?

Fiserv Inc (NASDAQ:FISV) is a technology company that works for the financial services industry. This means it creates proprietary back-end software at the foundation of banks, credit unions, leasing companies, retailers, and broker dealers. This makes it an integral part of the financial system, so is Fiserv stock a Buy?

Along with the rest of the stock market in early 2020, Fiserv took a major hit. FISV share price fell from a 52-week high of $125.05 to a low of $73.50 almost overnight. Much like the market as a whole, however, its share price returned to pre-crash levels within a couple of quarters.

With the financial industry heading for a rocky future, it’s arguably a risky time to be buying. The end of foreclosure and eviction provisions don’t help matters, and it’s unclear how a high unemployment rate will affect the housing market.

The Fed already dropped interest rates to historic lows to assist, and government stimulus checks kept things running through the year. So, what’s next for Fiserv, can it navigate the rough waters ahead?

Don’t Know Fiserv? Don’t Be So Sure

Fiserv is the parent company for over a dozen subsidiaries, so it’s not top of mind for most investors.

Its subsidiaries may be more familiar and include First Data, Clover Network, BluePay, MoneyPass, and Carillian.

Each subsidiary is a platform focused on the full process for a specific industry within the financial sector. Clover, for example, is a popular point-of-sale (PoS) platform used by retailers. It integrates cash registers with backend inventory, customer service, marketing, mobile, and other systems.

Each of its solutions are foundational to business, and it has assets in a variety of industries. Its $22 billion acquisition of First Data in 2019 was the largest fintech acquisition of its time and gave it control of the company’s STAR network.

If you’re unfamiliar with what that is, check the back of your debit card, as it’s accepted by over two million businesses, ATMs, and ecommerce marketplaces.

Of course, all the money in the world doesn’t make the company immune to the effects of a bad economy. If people stop spending money, it could find itself with shrinking margins that choke it out of business.

Which brings us to the question, how healthy are Fiserv financials?

Is Fiserv Stock A Buy?

Fiserv has a market capitalization that has hovered around $75 billion for a while now. Its stock price ranged between $115-$125, giving, it a P/E ratio over 87x.

As high as that P/E ratio is, the comparative valuation is much lower than rival fintech companies like Square (SQ) and PayPal (PYPL).

A discounted cash flow analysis shows Fiserv fair market value price of $119, which is higher than current share prices while Paypal and Square trade north of their respective intrinsic values of $183 and $99.

FSRV stock is still down for the year, in spite of impressive gains. This is largely due to widespread shutdowns of retailers who were slow to adapt to changing local rules.

As these companies pivoted to support ecommerce and reach out to wider customer bases, the need for Fiserv’s products and services got higher.

Fiserv only lost one percent of its revenue year-over-year from 2019, showing $3.59 billion and $1.20 adjusted earnings-per-share (EPS) in the third quarter of 2020.

Its year-to-date revenue dropped by 4 percent, but it still reported 11 percent EPS so far. It also increased free cash flow to 122 percent, and boosted its adjusted operating margin by 29.9 percent.

The strength of these numbers has some bearish investors wondering if it may be too big to maintain its market cap. We’ll explore that side next.

Risks Of Buying Fiserv Stock

The biggest risk to the economy is reduced spending, however Fiserv may actually be somewhat immune to the effects of a bad economy.

Payment acceptance is the only sector the company lost business in. Its fintech and payments businesses both grew in 2020, and this shows it’s a resilient company during rough economic times.

 

However, Fiserv also has plenty of competition that’s willing to spend whatever it takes to beat it. And these aren’t small companies either – fintech giants like PayPal (PYPL) and Square (SQ) are only a fraction of the rivals this payments company faces.

Fiserv Competitors Are Old & New, Big & Small

The Fintech industry is highly competitive in the 2020s. It’s filled with legacy companies like Visa (V) and MasterCard (MA), newer fintech giants like Square and PayPal.

These companies are continuing to grow while trying to take a piece of Fiserv’s pie at the same time.

Fiserv needs to aggressively target customers to attract them before one of these other companies does. Because of how complicated these apps can be in the backend, it’s very difficult to migrate someone once they’re onboarded. This is both the key to long-term success and a high hurdle to overcome.

The winner of each battle could be different in each market. Some geographies, like Europe, are moving away from American financial technologies.

Underserved markets with large unbanked and underbanked populations, like South America, are likely to adopt digital tools, perhaps even cryptocurrencies. The future is wide open when it comes to financial technology solutions and who will win.

Is Fiserv Stock A Buy? The Bottom Line

Fiserv is a financial technology company that is at the foundation of a lot of financial services. It connects businesses to consumers and financial institutions, helping facilitate all sorts of financial transactions. Because transaction volume runs the business, it managed to continue growing across most of its revenue streams.

However, the economic downturn hampered the company’s short-term growth, and it’s only barely returning to former price levels.

Investing in Fiserv now could be a solid bet because its success hinges more on the general market than any individual sector. However, the company has a rocky road ahead that’s filled with competition trying to outpace it in every lane it’s racing in. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.