With the stock up nearly 40 percent over the past year, an upgrade of Total System Services, Inc. TSS "isn't ideal," but it's the right decision, according to Oppenheimer.
Oppenheimer's Glenn Greene upgraded Total System Services from Perform to Outperform with a new $110 price target.
After taking an "overly conservative" stance on Total System Services for the past two years, Oppenheimer is shifting to a bullish stance for multiple reasons, Greene said in the upgrade note:
- The issuer solutions segment — which accounts for 44 percent of revenue — has shown impressive growth rates due to an expansion of its client portfolio along with value-added services, the analyst said. The momentum appears sustainable into 2020, and the segment could outperform management's own guidance of 5-7 percent compounded annual growth, he said.
- The merchant services business — 36 percent of revenue — has shown double-digit growth rates for three straight quarters from a combination of organic growth and the TransFirst acquisition, Greene said. The momentum is likely to continue at a high-teens rate, which would be ahead of management's 7-9 percent long-term growth guidance, he said.
- Consumer solutions — 20 percent of Total System Services' revenue — saw an "encouraging" 8-percent growth rate in the first half of 2018 despite headwinds from the loss of TurboTax, Greene said. The outlook for the smallest of the business units should remain favorable as the dynamic data authentication product is rolled out and new partnerships are announced, he said.
Bottom line: the growth prospects in each of the company's three business segments make the stock's 17.5 times multiple on 2020 estimated EPS "attractive" for investors, according to Oppenheimer.
Total System Services shares were trading higher by 2.2 percent at $98.64 at the time of publication and struck a new 52-week high of $99.40 Thursday.
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