Is This Top Fintech Stock a Safe Haven?

It’s hard to know precisely what some companies do and Fiserv (NYSE:FI) falls squarely in that category. Just because it’s not a household name, though, doesn’t mean you should move swiftly along to find another opportunity.

This payments and financial services technology provider is well worth getting to know for all sorts of reasons that we’re about to explain.

First, let’s unpack in simple terms what Fiserv actually does. When you swipe your credit card at a store or pay an online bill, Fiserv provides the technology to banks and businesses that allows your money move swiftly from your account to theirs.

It also makes it easy for banks to keep track of money flowing in and out, as well as providing tools to help manage finances online. In essence, Fiserv makes dealing with money flows faster, simpler and more secure.

So its value proposition is clear but have customers embraced it? And is Fiserv stock worth buying?

What Investors Don’t Know About Fiserv

Fiserv was among the early pioneers in digital payments and became a formidable player in 2019 when it acquired First Data. 

It’s riding the wave of digital payments growth that is forecast to rise from $111.2 billion this year to $193.7 billion by 2028.

That growth is, in part, a function of the global adoption of digital payments, and Fiserv has been strategically expanding its footprint internationally. It currently operates in operates in over 100 countries and 6 million merchant locations worldwide.

Not only does that help to buffer Fiserv from risk in any single domestic market but it also adds growth levers as digital payments gain traction around the world.

What makes Fiserv so attractive from an investment perspective is not only the diversification of its revenues but also its subscription and service-based contracts that provide a recurring stream of revenue.

With over 70% of revenue coming from account-based activities, the top line is more stable and predictable than many casual observers may be aware, thereby insulating the firm from volatility swings that could stem from economic downturns.

The company has also done a stellar job establishing strategic partnerships, such as with Salesforce, to offer personalized, customer-centric experiences for financial services. These types of opportunities intersect the worlds of fintech and traditional banking.

It’s clear that the Fiserv has a lot of opportunity up ahead, but does its track record to merit an investment?

Is Fiserv a Good Investment?

Fiserv financials are truly a thing of beauty. Looking back over the past 8 quarters, not a single one has resulted in a downturn in revenues. Quite the contrary, the top line has grown year-over-year in each quarter.

It’s worth noting that the growth on any given quarter isn’t spectacular but it does hover around 10% annualized and, better still, operating income is right around $1 billion each quarter. 

Predictably generating $4 billion in operating income is no mean feat and so we expected to see it reflected on the balance sheet with ever rising liquidity reserves.

Instead, cash is down from $3 billion in Q2 of 2022 to $1.08 billion in Q2 2023. So too is debt on the rise from $20.4 billion in that same quarter a year ago to $22.0 billion in the most recent reporting period.

Issuing almost $400 million annually in stock-based compensation isn’t helping matters much but it’s not the culprit for the cash decline.

The finger-pointing on the worsening balance sheet starts stems from acquisitions. Fiserv bought Finxact last year and Skytef in Q4 2023.

Those acquisitions have the potential to be acretive to earnings over time so the short-term impact to the balance sheet isn’t overly concerning.

The real question is whether the stock is now a bargain at current levels?

Is Fiserv Stock Undervalued?

According to 31 analysts, Fiserv is undervalued by 23.5% with fair value sitting at $140.77 per share.

A 5-year discounted cash flow forecast analysis puts a slightly higher price target at $144.07 per share, which would suggest the stock is 26% undervalued.

It seems that the Board of Directors, too, is of the opinion that the company is trading at a discounted to its intrinsic net worth and authorized a 75 million share buyback scheme earlier this year.

When you combine that with high earnings quality and positive levered free cash flow for 12 quarters straight, you end up with a compelling investment thesis.

The number of positives start to compound when you stack them up, including consistently increasing EPS figures, a strong return over the past decade, and analysts forecasting another highly profitable year.

Trading at a PEG of 0.97, when anything under 1.0 connotes undervaluation, Fiserv appears highly attractive.

Is Fiserv Stock a Buy?

Trading at 3.8x its last twelve months sales, and with a P/E of 27.7x, Fiserv is not trading at a particularly elevated level. To the contrary, the company’s earnings growth relative to its price-to-earnings multiple has put its PEG under 1.0, a crucial indicator of undervaluation.

Add to that the bullishness of analysts who have a consensus target price 23.5% higher plus a highly stable and diverse revenue stream with predictable profits, and you end up with an attractively priced firm that is likely to weather economic storms.

If there were one thing we would like to see that doesn’t exist it’s a higher return on invested capital, which sits now at just 6.3%. That would imply a wider moat exists for the firm. Nonetheless, the share price has steadily risen for most of the past ten years, and there is little reason to believe it won’t continue for the next decade.

Indeed, buyers who jumped on board 10 years ago have seen Fiserv appreciate from $26 to $115 over that time frame, and for the most part, it’s been a steady ride higher, with few pockets of volatility along the way.

That’s the kind of stock a long-term focused, conservative-minded investor might find highly attractive in this market.

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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.