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Total System Grows Inorganically, Imminent Rule Perturbs

Total System Services Inc. TSS, a provider of global commerce solutions, has grown meaningfully over the years through a number of strategic acquisitions.

One of the most notable acquisitions sealed was that of NetSpend in Jul 2013, which made Total System one of the largest program managers of dollars reloaded in prepaid cards. It broadened its footprint in the U.S. prepaid card industry and bolstered long-term growth through a diversified portfolio.

Enhancing technology, scale, and distribution capabilities, in Apr 2016, Total System acquired TransFirst, a major U.S. merchant solutions provider. The combination of Total System along with TransFirst and Netspend has enabled the company to function as an end-to-end, trusted provider in payments, with a strong foundation that includes issuer, merchant and prepaid solutions all under one roof.

Alongside profitable acquisitions, a number of partnerships, product launches and upgrades, investments in technology have accrued to the company’s top line which has grown to $3.04 billion in 2016 from $2.2 billion in 2014.

Total System has been posting impressive earnings over the past many quarters. Its strong earnings performance in the first quarter of 2017 prompted an increase the earnings outlook for 2017. The company now expects adjusted EBITDA margin to increase approximately 75 basis points for the year, from the previous 50-basis point expansion. Revenue guidance was increased by $20 million and the GAAP EPS range was revised upward from the $2.14 to $2.21 range to $2.25 to $2.32.

The company also revised its adjusted diluted EPS from the $3.05 to $3.15 range to $3.16 to $3.26, representing a year-over-year growth of 13% to 17% .

Year to date, the company’s shares have gained 22%, clearly outperforming the Zacks categorized Financial Transaction Services industry that has returned 17% over the same time frame. Given its strong fundamentals, we expect the share price to go up.

 

 

Nevertheless, the company remains concerned about the new the Consumer Financial Protection Bureau rules that are aimed to boost consumer protection for prepaid accounts and cards. These rules, set to be implemented in Apr 2018, will impact Total System’s NetSpend business. As a result of the implementation of new regulations, the company expects 2018 net revenues to be negatively impacted by approximately $30 million to $40 million and 2018 EPS to be negatively impacted by 9 cents to 11 cents.

Total System carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are QIWI PLC QIWI, sporting a Zacks Rank #1 (Strong Buy), and Alliance Data Systems Corp. ADS and Global Payments Inc. GPN, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

QIWI beat estimates in each of the last four quarters, with an average positive surprise of 23.61%.

Alliance Data beat estimates in two of the last four quarters, with an average positive surprise of 2.15%.

Global Payments, a leading provider of electronic transaction processing services for consumers, merchants, beat estimates last quarter by 8%.

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Total System Services, Inc. (TSS): Free Stock Analysis Report
 
Alliance Data Systems Corporation (ADS): Free Stock Analysis Report
 
Global Payments Inc. (GPN): Free Stock Analysis Report
 
QIWI PLC (QIWI): Free Stock Analysis Report
 
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