We came across a bullish thesis on Fiserv, Inc. (FI) on Pacific Northwest Edge’s Substack by David. In this article, we will summarize the bulls’ thesis on FI. Fiserv, Inc.’s share was trading at $202.36 as of Oct 23rd. FI’s trailing and forward P/E were 39.07 and 19.92 respectively according to Yahoo Finance.
An executive in a suit checking a bank of computers symbolizing the technology of the financial services industry.
Fiserv is a crucial player in the financial technology sector, with approximately 20% of its revenue derived from core processing systems for banks, known as the Fintech segment. This segment serves as the backbone for banks’ operations, enabling them to manage deposit accounts and loans securely and efficiently. The software is mission-critical; without it, the entire banking system could collapse. Fiserv enjoys a remarkable customer retention rate of 99% annually in this segment, as banks face substantial risks and challenges when considering switching providers. Such a transition involves significant learning curves and operational risks, making Fiserv’s core processing solutions incredibly sticky.
Beyond core processing, Fiserv provides Digital Financial Solutions, offering mobile banking capabilities to banks that prefer to outsource their app development. The Fintech segment also encompasses Enterprise Payment Solutions, which streamline electronic payments across various channels. Fiserv’s payment platform enables financial institutions to process and manage non-card-based electronic payments efficiently, supporting services like Automated Clearing House (ACH) and real-time payments. This infrastructure is essential for modern banking, providing the efficiency necessary to navigate a complex payments landscape.
The Payments segment constitutes about 40% of Fiserv’s revenue and includes debit and credit processing, bill payments, and various digital transaction solutions. Fiserv’s robust technology ensures the reliability and security of transactions, creating a significant competitive advantage. Additionally, the Acceptance segment accounts for the remaining 40% of revenue, prominently featuring Clover, a comprehensive point-of-sale solution for merchants. While the Acceptance segment is less fortified than the Fintech segment, the cost and inconvenience of switching systems keep customer relationships stable.
Fiserv has exhibited rapid growth, consistently outperforming the S&P 500 over the long term. Despite facing challenges during the COVID-19 pandemic, the company has rebounded and continues to thrive. The acquisition of First Data in 2019, although dilutive to existing shareholders at first, has significantly increased revenue and free cash flow, enabling aggressive share buybacks that enhance shareholder value. This acquisition marks a pivotal moment for Fiserv, affirming its commitment to returning value to shareholders.
In summary, Fiserv’s well-established market position, sticky customer relationships, and diversified product offerings create a compelling investment case. The company’s operational resilience, combined with its strategic acquisitions and commitment to shareholder value, positions it for continued growth in the evolving financial technology landscape, providing investors with a strong opportunity for long-term returns.
Fiserv, Inc. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 73 hedge fund portfolios held FI at the end of the second quarter which was 69 in the previous quarter. While we acknowledge the risk and potential of FI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.