Global Expansion And Acquisitions Will Face Risks And Uncover Opportunities

Key Takeaways

• Expansion into new markets and recent acquisitions may not yield expected synergies, risking lower net margins and increased operating expenses.
  
• Economic instability and currency fluctuations, especially in Argentina, pose significant risks to consistent revenue growth and strategic plans.
  
• Fiserv's diverse growth strategy, strong cash flow, strategic market expansion, and partnerships enhance its revenue potential and attract investors.

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 reliance on international markets like Argentina for organic revenue growth may pose risks due to potential economic instability, which could lead to inconsistent revenue projections.
  
• The integration of recent acquisitions and new product offerings such as CashFlow Central and Payfare may not deliver the expected synergies at scale, potentially impacting net margins negatively.
  
• Fiserv’s aggressive expansion into new geographic markets like Brazil, Mexico, and Australia could result in higher operating expenses without guarantee of proportionate revenue increases, potentially affecting earnings.
  
• The transition to new leadership may introduce execution risks in strategic plans, possibly affecting long-term revenue growth if not managed efficiently.
  
• Macroeconomic factors, such as currency fluctuations due to the Argentine peso devaluation, might impact revenue growth, hampering the company’s ability to meet its 2025 guidance.

Fiserv Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Fiserv compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Fiserv's revenue will grow by 3.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 15.3% today to 23.7% in 3 years time.
• The bearish analysts expect earnings to reach $5.4 billion (and earnings per share of $9.5) by about April 2028, up from $3.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 24.3x on those 2028 earnings, down from 37.2x today. This future PE is greater than the current PE for the US Diversified Financial industry at 14.0x.
• 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 7.25%, as per the Simply Wall St company report.

Fiserv Future Earnings Per Share Growth

Risks

• Fiserv's strong and diverse revenue growth, with adjusted earnings per share up by 17% and total company organic revenue growth of 16%, indicates a solid foundation that may support future revenue increases.
  
• The significant free cash flow of $5.2 billion and a robust share repurchase program returning $5.5 billion to shareholders underline Fiserv's strong cash flow and earnings capacity, which can be attractive to investors.
  
• The strategic expansion into new regions and markets, such as the launch in Brazil, Mexico, and Australia, highlights the potential for increased international revenues and growth opportunities.
  
• Partnerships and collaborations, such as those with DoorDash and ADP, enhance Fiserv’s product offerings and expand its market reach, likely driving further revenue and earnings growth.
  
• The adoption of innovative products like CashFlow Central within the small business suite and the integration with digital banking platforms suggest the potential for increased revenue streams and improved operating margins.

Valuation

• The assumed bearish price target for Fiserv is $214.56, which represents one standard deviation below the consensus price target of $247.47. This valuation is based on what can be assumed as the expectations of Fiserv's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 $145.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $22.6 billion, earnings will come to $5.4 billion, and it would be trading on a PE ratio of 24.3x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $208.66, the bearish analyst price target of $214.56 is 2.7% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.