FiServ: Behind Digital Banking

11/17/2015 8:00 am EST

Focus: STOCKS

Tyler Laundon

Editor, Cabot Small-Cap Confidential

Our goal is all about finding undervalued companies that are changing the face of their industries or in industries that are changing the face of the world. Our latest recommendation is no different, asserts Tyler Laundon, editor of Game Changers.

In banking, even the most rudimentary technology didn’t really come about until 1959, when the standardized lettering on checks was introduced.

ATMs first appeared in the 1960s and the precursors to electronic payment systems appeared in the 1970s.

Fast forward to 2015. Today it takes mere seconds to use my fingerprint and my iPhone to pay for groceries. I can use direct deposit to collect income and pay my bills with a few clicks on my laptop.

To most, innovations like online banking and account management are just a nice convenience afforded to us by improving technology. To us, these technologies look like an opportunity.

One company in particular is behind the technology powering much of the commonly used online banking, electronic bill payments, credit and debit card production and transaction processing systems.

That company is Fiserv (FISV). The company offers highly scalable financial processing systems of all kinds; including the software banks use to manage online banking and transactions.

Fiserv will close its 30th consecutive year of double-digit earnings per share growth at the end of 2015. And things keep looking up.

The company updated its full year EPS guidance from a range of $3.74 to $3.83 to a range of $3.84 to $3.87.

It also repurchased $514 million worth of its own stock during the quarter. It’s worth noting that Fiserv has repurchased nearly 40% of its stock over the past ten years and is clearly committed to this strategy.

We expect to continue seeing double-digit earnings growth, rising margins, and EPS figures that are boosted by the company’s ongoing share repurchases.

Online banking clearly isn’t going away. The trend toward making just about every aspect of our financial lives digital is at the core of Fiserv’s business model.

Fiserv is involved in just about all of the technologies both behind-the-scenes and front-and-center in the banking and financial services industry.

The thesis that first put this stock on our watch list is intact and the company has never been stronger. We rate the stock a buy.

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