My Watchlist – November 22, 2010

I have reviewed issue 13 of Value Line looking for companies that have exceptional returns on equity, strong book value growth or strong “guru investor” sponsorship.

The idea here is to have a dashboard of substantially all the larger-cap high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.

Because of a limit on the number of functions that Google allows in a single spreadsheet, I had to split the spreadsheet into two parts.

This week’s update is in part 2.

Watchlist – Part 1

Watchlist – Part 2

Stocks from issue 13 (see Watchlist – Part 2)

Fiserv, Inc.

Total System Services, Inc.

Wright Express Corporation

Automatic Data Processing

Accenture Plc

H&R Block, Inc.

Paychex, Inc.

American Express Company

Brown & Brown, Inc.

Citigroup Inc.

Federated Investors, Inc.

MasterCard Incorporated

SEI Investments Company

T. Rowe Price Group, Inc.

Visa Inc.

Wells Fargo & Company

Cognizant Technology Solutions Corp.

Infosys Technologies Limited (ADR)

Microsoft Corporation

Oracle Corporation

SAP AG (ADR)

Google Inc.

Exelon Corporation

Stock Focus: Fiserv

Background:

Fiserv – Wikipedia, the free encyclopedia

Fiserv’s Ambitious Credit-Crunch Plans – Forbes.com

Fiserv’s Got Your Back (Office) – Barron’s

Why Is Buffett Buying Shares of Iron Mountain, Fiserv? — Seeking Alpha

Fiserv, Jack Henry Upbeat About Core Client Spending – American Banker Article

Notable owners:

Warren Buffett: 3,910,800 shares

Glenn Greenberg: 2,088,579 shares

Future Prospects

Growth prospects per Jan. 28, 2010 writeup on Value Investors Club.

The top-line growth is coming from several drivers, including:

  1. Increased outsourcing – there are still banks that operate on legacy, in-house developed and inefficient systems. These are slowly being converted.
  2. Online banking is expanding and Fiserv is the largest provider. An increasing number of banks are transforming to digital branches, providing more online services to their customers. Also, online bill payments continue to replace the typical paper payment methods. Fiserv has only 3,900 online customers, a small percentage of the total. There are only 7.8 million E-bill consumers – penetration within the Fiserv’s client base is very low – below 10%. The number of e-bills per subscriber is only 2.5 per month. An average individual pays several times that number in bills a month. Continued adoption should lead to steady growth.
  3. New technology leads to additional billed services.
  4. Growth in number of deposit accounts – industry CAGR for the last 5 years was 7%.
  5. Increased number of debit and prepaid card transactions. These two are projected to grow at 7% and 15%, respectively over the next three years.
  6. Additional add-on products like fraud and loyalty services and cross-selling existing products (increasing penetration)

Long-term guidance provided by Fiserv management at 2010 Investor Conference, October 5, 2010.

Internal revenue growth rate: 4-8%

EPS growth rate: 11-18%

FCF growth rate: 8-14%

Operating margin: 50-100 bps

Valuation

Market cap: 8.38 billion

EV: 11.34 billion

2010 EPS Estimate: 4.05

PE on 2010 estimate: 13.86

TTM FCF: 683 million

FCF Yield: 8.15%

EBITDA: 1290 million

EBIT: 953 million

EV/EBITDA: 8.81

EV/EBIT: 11.9

EBIT/Tangible Capital Employed: 107%

Acquisition comp: Per an article in Barron’s, in 2010, Blackstone Group offered $35 a share to purchase Fiserv competitor Fidelity National Information Services. This works out to about 10 times estimated 2010 EBITDA.

The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.

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