Fiserv (FISV) Down 7.8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Fiserv (NASDAQ:FISV). Shares have lost about 7.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fiserv due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Fiserv Lags Q4 Earnings Estimates, Beats on Revenues

Fiserv reported mixed fourth-quarter 2019 results, wherein the company’s earnings lagged the Zacks Consensus Estimate but revenues surpassed the same.

Adjusted earnings per share of $1.13 missed the consensus mark by a penny but increased on a year-over-year basis. Revenues of $4.05 billion outpaced the consensus estimate by 2.1% and improved more than 100% year over year.

Adjusted revenues of $3.71 billion increased 3.5% on a year-over-year basis. Internal revenue growth was 5% on a constant-currency basis, with 6% growth in the First Data segment, 4% growth in the Payments segment and relatively consistent performance in the Financial segment.

Let’s check out the numbers in detail.

Revenues in Detail

Revenues at the First Data segment increased 2.7% year over year to $2.46 billion, on the back of solid performance in the former GBS segment and strength across its digital commerce, ISV Solutions and global merchant acquiring. Adjusted revenues of $2.22 billion grew 4.5% year over year.

Revenues at the Payments and Industry Products segment increased 4.6% year over year to $987 million. Adjusted revenues of $902 million grew 5% year over year. The upside was driven by solid performance of card services, output solutions and some early network revenue synergy benefits.

In the reported quarter, debit transaction grew in high single digits and total P2P transactions, including Popmoney and Zelle solutions, doubled on a year-over-year basis and went up 18% sequentially. Mobiliti ASP subscribers increased 11% to more than 9 million. Zelle transactions tripled in 2019 with the number of live clients increasing 10 times from the year-ago quarter. The company signed 112 Zelle clients in the reported quarter.

Revenues at the Financial Institution Services segment decreased 0.9% year over year to $609 million.

Revenues at Total processing and services segment increased more than 100% year over year to $2.61 billion while product revenues grew more than 100% year over year to $520 million.

Operating Results

Adjusted operating income of $1.16 billion was up 7.2% from the year-ago quarter. Adjusted operating margin of 29.8% grew 100 basis points (bps) year over year, driven by a combination of continued revenue growth, lapping of prior year's tax reinvestment, and the early benefits from synergies, partially offset by the expected lower periodic revenues compared with the fourth quarter of 2018.

Adjusted operating income at the First Data segment was $708 million, up 6.3% year over year. Adjusted operating margin improved 50 bps year over year to 30.7%, driven mainly by strong revenue growth.

Adjusted operating income at the Payments and Industry Products segment was $353 million, up 12.1% year over year. Adjusted operating margin improved 250 bps year over year to 39.2%. The improvement can be attributed to growth in high quality revenues, the reduction of last year's tax funded investments and the benefits from productivity and early synergy performance.

Operating income at the Financial Institution Services segment totaled $207 million, down 0.5% year over year and operating margin of 34.1% improved 40 bps. The upside was driven by high-quality recurring revenue growth and operational efficiency, which had offset the impact of lower periodic revenues.

Balance Sheet and Cash Flow

Fiserv exited fourth-quarter 2019 with cash and cash equivalents of $893 million compared with $1.03 billion at the end of the prior quarter. Long-term debt at the end of the reported quarter was $21.61 billion compared with $22.12 billion at the end of the prior quarter.

The company generated $1.18 billion of net cash from operating activities in the reported quarter. Free cash flow was $984 million. Capital expenditures were $290 million. Fiserv repurchased 2.2 million shares for $238 million in the reported quarter.

2020 Guidance

Fiserv unveiled its guidance for full-year 2020. Adjusted earnings per share are expected in the range of $4.86 to $5.02 (indicating 23-27% year-over-year growth) over the adjusted earnings per share for 2019 as revised for the net impact of divestitures including the Investment Services transaction announced in December. The company expects internal revenue growth of 6-8%. Adjusted operating margin is anticipated to expand by at least 250 bps and free cash flow conversion is estimated above 112%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Fiserv has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Fiserv has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.