Fiserv, Inc. – Prospering but Inexpensive
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Solutions |
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FISV [NDQ:FISV - $49.64] is as consistent a growth company as I’ve come across. Here are their per share numbers (excluding extraordinary items) as reported by Value Line:
|
Year |
Sales |
C/F |
EPS |
B/V |
Avg. P/E |
|
2000 |
8.91 |
1.73 |
0.91 |
6.74 |
33.3X |
|
2001 |
10.06 |
1.88 |
1.07 |
8.54 |
34.0X |
|
2002 |
11.91 |
2.12 |
1.36 |
9.56 |
21.8X |
|
2003 |
13.90 |
2.51 |
1.61 |
11.32 |
21.8X |
|
2004 |
17.25 |
2.99 |
2.00 |
13.20 |
18.4X |
|
2005 |
20.40 |
3.40 |
2.30 |
13.57 |
18.5X |
|
2006 |
24.13 |
3.75 |
2.50 |
14.18 |
18.2X |
|
2007 |
21.14 |
3.89 |
2.66 |
14.94 |
19.9X |
|
2008 |
30.44 |
4.69 |
3.27 |
16.64 |
14.2X |
|
2009 |
26.96 |
4.82 |
3.62 |
19.75 |
11.8X |
Value Linenotes that Fiserv’s ‘stock price stability’ and ‘earnings predictability’ fall in the 90th and 100th percentiles (with 100th being best). Why wouldn’t they? (Considering the cash flow, earnings and book value all rose during each year on the chart above).
What’s incredible is that Fiserv’s outstanding growth has been totally dismissed by the market. The P/E had compressed from a high 33 – 34x a decade ago to only 11.8x in 2009. The first quarter of 2010 did not disappoint. EPS hit a March quarter record of $0.95 versus 2009’s $.088 and full year estimates now run about $4.00 – $4.10. The consensus view for 2011 is pretty tightly centered on $4.40 – $4.45.
At this afternoon’s price of $49.64 FISV trades for about 12.4x the low-end estimate for 2010 and 11.3x next year’s expectations. Those are close to the all-time lows in terms of valuations for this fine company. Their 10-year median P/E has been 20x and Value Line sees fit to use a 19 multiple in calculating their 3 – 5 year target pricing. Standard and Poors sees present day ‘fair value’ as $59.80 or 16.2x trailing earnings from continuing operations.
If the $4 estimate for 2010 proves accurate (as is likely with the 100th percentile ‘earnings predictability’ ranking) then a rebound to even a 15 multiple could support a rise to $60. That conservative goal would still make for a greater than 20% move by year-end.
Fiserv acquired Checkfree in December of 2007 increasing their exposure to paperless, electronic bill paying. After almost 2 ½ years this looks to have been a prescient purchase. Electronic banking seems to be a huge growth business.
It’s hard to believe we can own such a premium company at such a modest price. I’m a buyer of the shares and a seller of their December puts.
Here are the specifics on the most attractive puts at the moment…
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Put Premium /sh. |
Net Price ‘If Put’ |
Margin of Safety* |
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Dec. $50 puts |
$4.40 |
$45.60 |
8.1% |
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Dec. $55 puts |
$7.30 |
$47.70 |
3.9% |
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* margin of safety = % ‘if put’ price is below the present $49.64 quote |
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Dr. Paul Price – May 18, 2010
Disclosure: Author is long FISV shares and short FISV puts.
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