Global Expansion And Partnerships With ADP And DoorDash Will Unlock Future Opportunities

Key Takeaways

• Fiserv's global market expansion and strategic partnerships, especially with Clover and DoorDash, aim to boost revenue and client acquisition through comprehensive financial services.
  
• New product rollouts and integrations, particularly for small businesses, support projected organic revenue growth and operating margin improvements by 2025.
  
• Competitive pressures and execution risks in new markets and technologies could challenge revenue growth and strain margins, especially amid high debt and macroeconomic uncertainties.

Catalysts

Provides payments and financial services technology solutions in the United States, Europe, the Middle East and Africa, Latin America, the Asia-Pacific, and internationally.

• Fiserv's expansion into new markets, such as Brazil, Mexico, and Australia, offers significant growth opportunities, particularly for its Clover platform, which could drive increased revenue.
  
• The integration of the full SMB suite with Fiserv's digital banking platform, XD, and the expansion of CashFlow Central, aims to provide comprehensive solutions to small businesses, potentially improving customer acquisition and revenue.
  
• The strategic partnership with ADP enhances Fiserv's product offerings for small businesses by integrating payroll solutions with Clover, which could strengthen revenue streams from cross-selling and an expanded customer base.
  
• Fiserv is leveraging its platform capabilities in embedded finance with initiatives like the partnership with DoorDash to offer comprehensive services, suggesting potential for increased earnings through new financial services offerings and client acquisition.
  
• The company's emphasis on strategic product rollouts, international expansion, and deepening partnerships is expected to support its guidance of 10% to 12% organic revenue growth and at least 125 basis points of operating margin expansion in 2025, contributing positively to earnings.

Fiserv Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fiserv's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.3% today to 24.6% in 3 years time.
• Analysts expect earnings to reach $6.1 billion (and earnings per share of $11.61) by about April 2028, up from $3.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $5.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.7x on those 2028 earnings, down from 39.8x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 4.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.35%, as per the Simply Wall St company report.

Fiserv Future Earnings Per Share Growth

Risks

• Exposure to currency fluctuations, particularly in markets like Argentina, could negatively impact adjusted and organic revenue growth.
  
• Competitive pressures in the merchant solutions space, especially as Fiserv seeks to expand into new geographies, could strain net margins if pricing strategies do not align with market expectations.
  
• Execution risk associated with the integration of new technologies and solutions, such as CashFlow Central and international expansions, may impact short-term earnings if not successfully implemented.
  
• The macroeconomic environment, including potential recessionary pressures, could dampen consumer spending trends, impacting revenue growth and earnings projections.
  
• Relatively high debt levels and a potential increase in interest expenses could put pressure on free cash flow and net earnings.

Valuation

• The analysts have a consensus price target of $254.451 for Fiserv based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $300.0, and the most bearish reporting a price target of just $172.34.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.6 billion, earnings will come to $6.1 billion, and it would be trading on a PE ratio of 25.7x, assuming you use a discount rate of 7.3%.
• Given the current share price of $222.01, the analyst price target of $254.45 is 12.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.