3. Fiserv, Inc. (NASDAQ:FISV)
ValueAct Capital’s Stake Value: $1,186,469,000
Percentage of ValueAct Capital’s 13F Portfolio: 13.74%
Number of Hedge Fund Holders: 65
Fiserv, Inc. (NASDAQ:FISV), a financial technology company offering point of sale payment terminals, is one of the top stock picks of ValueAct Capital. The hedge fund owns roughly 11 million Fiserv, Inc. (NASDAQ:FISV) shares as of Q3 2021, worth $1.18 billion, representing 13.74% of the total 13F portfolio.
The Q3 earnings report was published by Fiserv, Inc. (NASDAQ:FISV) on October 27. The company posted an EPS of $1.47, exceeding estimates by $0.02. Revenue over the period jumped 9.96% year-over-year to $4.16 billion, outperforming estimates by $59.26 million.
Wedbush analyst Moshe Katri lowered the price target on Fiserv, Inc. (NASDAQ:FISV) to $130 from $138 and kept an Outperform rating on the shares on December 20. The analyst cites ongoing indications of choppy consumer spending, renewed pandemic-driven B&M shutdowns/travel slowdown, and reduced spending on non-discretionary items because of inflationary pricing pressure on staple goods.
Harris Associates is the largest Fiserv, Inc. (NASDAQ:FISV) stakeholder as of Q3 2021, increasing its position in the company by 35%, holding 16.2 million shares worth $1.76 billion.
Here is what Madison Investors Fund has to say about Fiserv, Inc. (NASDAQ:FISV) in its Q1 2021 investor letter:
“This quarter we researched several new stock ideas, but because of high prices, acted on only one. Thus, a new portfolio name is Fiserv, with corporate headquarters in Brookfield, WI, just down I-94 from us. Fiserv is a technology company serving financial institutions (“FIs”) and retail merchants. It has two main business lines. In the first, it’s a market leader in outsourced IT solutions for banks and credit unions, online and mobile banking technology, digital money movement solutions, and card issuing services. Fiserv’s second core business is merchant acquiring and processing, where it’s a leader in providing a variety of solutions to help all types of merchants accept digital payments. They entered this business through the acquisition of First Data in 2019.
Within the first business, Fiserv’s software is critical to the daily operations of FI clients. Their solutions not only provide the vital central processing systems, but also enable services such as electronic bill pay and digital money transfers at both large institutions and local banks and credit unions alike. As such, it is an incredibly sticky business that is resilient through economic cycles. On the merchant acquiring side of Fiserv, they process trillions of dollars annually for millions of merchant clients. Their solutions cater to all types of merchants and optimize for seamless acceptance and high authorization rates while also limiting fraud. Similar to the IT outsourcing business, Fiserv’s merchant solutions are critical to their customers’ daily operations. Furthermore, we are especially encouraged by their investments in new solutions, particularly Clover and Carat. Clover is a small and midsize business merchant acquiring platform and Carat is an e-commerce acquiring platform. Both these products hit the bullseye in terms of the way people are interacting with the retail industry, and both are growing at above market rates, which we believe will sustain into the future.
In addition to Fiserv’s favorable business characteristics and competitive positioning, the management team, led by CEO Frank Bisignano, has a track record of successfully investing for growth, improving profitability, and intelligently allocating excess capital. We believe these value-creating activities will continue going forward.
Financial institutions are increasingly making investments to digitize their customer facing products and digital payments are increasingly taking share from cash as a form of payment. As a result, demand for Fiserv’s solutions should continue to grow nicely in the coming years. In our view, Fiserv offers a nice combination of above average growth, high profitability, business resiliency, and shareholder-friendly management. We do not believe these characteristics were fully reflected in Fiserv’s share price when we made our investment during the quarter at a discount to the market’s 2021 price-to-earnings (P/E) multiple, a valuation level well below Fiserv’s historical premium.
An offsetting trade was the sale of Cognizant Technology Solutions, which was sold around the time Fiserv was added to the portfolio. Cognizant had been held since 2018, and we had expected it to perform similarly to another portfolio holding in the same industry, Accenture. Alas, multiple years of below industry growth challenged the investment, and despite our belief that CEO Brian Humphries could materially improve operations, recent metrics regarding elevated employee turnover and still below-average revenue growth led us to conclude that there was more heavy lifting required at the company. We decided that our investors would be better served by being invested in Fiserv rather than Cognizant.”
