On Monday, Morgan Stanley raised its rating on Fiserv (NYSE:FI) (NASDAQ:FISV stock), a financial services technology company, from Equalweight to Overweight. The firm also increased the price target to $175 from the previous $154.
The upgrade is based on the expectation that Fiserv will sustain strong merchant growth, particularly through its Clover asset, which is anticipated to continue gaining market share.
The analyst believes that this growth trajectory will lead to consistent earnings outperformance, especially as the competitive landscape appears to be easing. Additionally, there is a strong belief in the management's ability to achieve or come close to their financial targets for 2025/26, despite investor skepticism regarding these ambitious goals.
Morgan Stanley's optimistic outlook is further supported by robust support from long-only investors, contributing to the conviction that Fiserv's stock will continue to be an 'earnings compounder.' However, the potential for multiple expansion is seen as more limited due to the stock's already premium valuation.
To justify the new price target, Morgan Stanley has applied an updated price-to-earnings (P/E) multiple of 17 times to Fiserv's stock, which is approximately 1.5 times higher than where it currently trades. This revised multiple reflects increased confidence in the durability of Fiserv's earnings growth and its potential to outperform the market.
In other recent news, Fiserv has been in the spotlight following a positive first-quarter earnings report. The company's Merchant segment experienced significant organic growth, further bolstered by inflation in Argentina.
Additionally, Clover, Fiserv's point-of-sale and business management system, reported a robust revenue growth of 30% for the second consecutive quarter. BofA Securities subsequently raised the price target for Fiserv shares to $175 from $164, maintaining a Buy rating on the stock. The firm cited these strong performances as the basis for the optimistic stance.
Moreover, Fiserv surpassed expectations in terms of margins and adjusted earnings per share, leading to a modest raise in the company's full-year guidance. These developments, according to BofA Securities, should reinforce confidence among investors.
InvestingPro Insights
Morgan Stanley's upbeat assessment of Fiserv aligns with some of the metrics observed in real-time data. Fiserv's market capitalization stands robust at $91.34 billion, and while the company trades at a P/E ratio of 29.07, it's worth noting that it's trading at a low PEG ratio of 0.68 over the last twelve months as of Q1 2024, indicating a potential undervaluation relative to near-term earnings growth. Additionally, Fiserv's consistent profitability is reflected in its gross profit margin of 60.52% and an operating income margin of 26.2% for the same period. These margins underscore the company's efficiency in generating profits from its revenues.
On the growth front, Fiserv's revenue has grown by 7.07% over the last twelve months as of Q1 2024, with a quarterly growth rate of 7.39% in Q1 2024. The company's stock is also trading near its 52-week high, at 96.88% of the peak, which complements Morgan Stanley's price target increase. Additionally, InvestingPro Tips highlight that Fiserv does not pay a dividend, which may appeal to investors prioritizing reinvestment over immediate income.
For investors seeking a more in-depth analysis, there are additional InvestingPro Tips available, which could further inform investment decisions. Using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these valuable insights. Currently, there are five more tips listed in InvestingPro for Fiserv, including predictions of profitability this year and a high return over the last decade, which could be pivotal for long-term investors.
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