Total System: A Strong Buy - Analyst Blog

On Sep 14, 2013, Zacks Investment Research upgraded electronic payment service provider – Total System Services Inc. (TSS) -- to a Zacks Rank #1 (Strong Buy) from Zacks Rank #2 (Buy).

Why the Upgrade?

Total System has been experiencing rising earnings estimates on the back of improved second-quarter 2013 results. Moreover, growth in transaction volumes and new accounts as well as diversification through NetSpend acquisition have been impressive.

Additionally, this electronic payment processing and merchant acquiring services provider outperformed the year-to-date S&P 500 index, which posed a 20.4% increase against the company's return of 37.1%. Total System is expected to grow by about 11.8% in the long run, which appears sustainable.

On Jul 23, Total System reported second-quarter 2013 operating earnings per share of 34 cents, which beat the Zacks Consensus Estimate by a penny but also fell short of the year-ago number by a cent.

Total System is witnessing healthy growth from its merchant acquiring business owing to technological upgrades and the attainment of spectacular processing contracts. This is reflected by higher number of accounts on file, along with the recent strategic alliances with ProPay and PayPal.

Moreover, the acquisition of NetSpend in Jul 2013 is expected to amplify the company's core synergies and operating leverage, while also diversify Total System's product portfolio into prepaid card services. The accretion from the acquisition is also reflected by the raised guidance.

Accordingly, management upped its top-line growth projections within mid-to-high teens range in 2013 from prior 5−7% growth estimate. Excluding acquisition-related expenses, earnings and EBITDA are also predicted to grow in high-teens range, up from prior single-digit estimates. Management also expects to reduce its debt, borrowed to fund the acquisition, as soon as possible and sustain a debt-to-EBITDA of 2.0x in future, along with consistent capital deployment.

Based on Total System's fundamental strength and bright outlook, the Zacks Consensus Estimate for 2013 grew 11.0% to $1.61 per share in the last 60 days. The same for 2014 rose 9.6% to $1.94 per share in the last 60 days. Meanwhile, no downward revision in estimates was witnessed for both the years.

Other Stocks to Consider

Apart from Total System, other outperformers in the financial services industry include Glacier Bancorp Inc. (GBCI), East West Bancorp (EWBC) and Preferred Bank (PFBC). All the stocks carry a Zacks Rank #1 (Strong Buy).