Goldman Sachs published a report entitled “Americas: Technology: IT Services” on January 11, 2012. The report isn’t publicly available but we will discuss its main points. In their report, Julio C. Quinteros Jr., Vincent Lin, Roman Leal, and Geo John are defensive for the IT services sector in the year 2012. Goldman Sachs (GS) is concerned about the “current macro backdrop, with expectations for a slower global growth clouding visibility as we head onto 2012”. They have concentrated on stocks that are U.S. based mentioning a number of buy and sell rated stocks. We will discuss the stocks in two articles. This is the first of two articles, focusing on the buy rated stocks.
Neustar, Inc. (NSR) provides technology and directory services to its communications service provider and commercial business customers. It has been given a buy rating by Goldman Sachs. Goldman Sachs expects the company’s initial 2012 outlook to serve as a growth in shares. In CY2011, Neustar used around $1 billion for mergers and acquisitions and share buybacks. Neustar recently acquired TARGUSinfo but the Street is still underestimating the earnings potential of the company. If the NPAC contract is renewed, Neustar’s valuation is likely to be boosted in the near future. Shares of the company are currently trading at $35.5 per share and are likely to reach a price target of $43, indicating a potential upsie of 21% in share price. The target price implies 16.9x the CY12E earnings per share of $2.55.
Synchronoss Technologies, Inc. (SNCR) is a provider of on-demand transactions, content, and connectivity management platforms. It has been given a buy rating by Goldman Sachs due to its exposure to the rapid growth in connected devices. Goldman Sachs is of the opinion that a strong growth volume, coupled with an increased penetration of large carrier clients, and the international market will lead to higher valuations for Synchronoss Technologies. The company is performing cloud-based functions by working with carrier OEMs, thus increasing the lifecycle of connected devices. New activations and new offerings are going to drive the company’s growth, according to Goldman Sachs. Shares of the company are currently trading around $30 per share and are expected to go north of $37 in 2012. The price target implies a CY2012E price-to-earnings ratio of 31.6x.
Visa, Inc. (V) operates retail electronic payment networks worldwide. Goldman Sachs has given the company a buy rating and expects the company to have a secular growth with a defensive growth in earnings per share. As the world shifts towards electronic payments and with global consumer transactions increasing every day, Goldman Sachs expects Visa to generate a double-digit earnings-per-share growth. Despite being a global company, Visa still has limited exposure to the European markets. Goldman Sachs also believes that Visa will implement mitigation strategies to protect its dominant share of the debit market in the U.S. Shares of the company are currently trading at $101.3 per share and are expected to go north of $114 per share by the end of 2012. The target price is based on a CY2012E price-to-earnings ratio of 18.2x. Warren Buffett’s Berkshire Hathaway initiated a brand new position in Visa during the third quarter.
Fiserv, Inc. (FISV) is a provider of various financial services technology solutions. Goldman Sachs has given the company a buy rating and considers it the top pick in the financial outsourcing sub-sector. Fiserv has a very low exposure to the European markets due to its focus on U.S. based banks. Goldman Sachs believes that the company will be highly valued due to its recurring revenue model and a defensive earnings strategy. Fiserv has a disciplined capital allocation that will also attract investors. Shares of the company are currently trading at $61 per share and are expected to reach a price target of $67 per share by the end of 2012. Jim Simons’ Renaissance Technologies initiated a brand new position in Fiserv during the third quarter.
Green Dot Corporation (GDOT) is a prepaid financial services company that provides money management solutions to customers in the U.S. It has been given a buy rating by Goldman Sachs. Shares of the company are currently trading at $29.8 per share and are expected to reach a price target of $34 per share. Goldman Sachs recently lowered its expected price target due to compression in the company’s multiple. The price target implies a lower CY2012 price-to-earnings ratio of 18.5x from its previous target of 22.8x.
NCR Corporation (NCR) provides technological services that help businesses connect, interact, and transact with their customers in the financial industry. Goldman Sachs has given the company a buy rating due to its strong product cycle momentum. NCR currently has a leading market share in the global ATM marketplace and is likely to benefit from its continued ATM spending. With an early-mover advantage in the highly fragmented retail point-of-sale space, the company is looking to gain some traction. Cost cuts are also likely in the future. Goldman Sachs believes that the company is fairly insulated against its exposure to the European markets due to a solid growth order and backlog. Shares of the company are currently trading at $16.6 per share and are expected to reach a price target of $19 per share by the end of 2012. David Einhorn had $167 million invested in NCR at the end of September.
Higher One Holdings, Inc. (ONE) is a provider of technology and payment services to the higher education industry in the U.S. It has been given a buy rating by Goldman Sachs. With the recent sponsorship of a bank in December 2011, the company is looking to clear some of the overhang on the stock. This sponsorship also prompted Goldman Sachs to revise its estimates. Shares of the company are currently trading at $17.6 per share and are expected to reach a higher price target of $21 per share, as opposed to Goldman Sachs initial estimate of $20. The revised price target implies a CY2012 price-to-earnings ratio of 23.9x.
