Barron’s: Fiserv Could Jump 20% From Here

Fiserv (FISV), one of our Buy List stocks, gets some love from Barron’s:

Earnings are on track to rise to $4 per share this year from $3.66 in 2009, and to gain nearly 10% in 2011 to $4.44, placing the price/earnings multiple at 13.4 times 2010 projections and 12.1 times 2011 expectations. (Per-share earnings are reported “as adjusted” for the adding back of goodwill amortization, for a clearer gauge of the underlying business.) This is cheap for such a high-quality, industry-leading business, which merits a multiple equal to or better than the Standard & Poor’s 500’s 15-plus times ’10 forecasts. Also, it suggests at least 20% upside for Fiserv shares.
Because Fiserv’s business is so steady, many investors value it on free cash flow, which has exceeded reported earnings in recent years — a favorable trend. Free cash flow hit $668 million in 2009, up from $603 million in ’08. The company is guiding Wall Street to expect more than $700 million this year. With a market value of $8.2 billion, investors are getting a free-cash-flow “yield” of nearly 9%, at a time when corporate-bond investors are happy to accept 5% or 6%. The stock historically has traded above 14 times free cash flow. With nearly $5 a share of free cash penciled in for 2011, that multiple suggests a price target near 70.

The next earnings report is due this Thursday after the bell. The Street is expecting 97 cents per share, up from 88 cents a year ago. Here are the annual EPS results for the past few years:
2003: $1.61
2004: $1.92
2005: $2.31
2006: $2.53
2007: $2.66
2008: $3.29
2009: $3.66
That’s what I like to see — nice steady increases. I think EPS for 2010 will come in around $4.05, give or take. Fiserv is an excellent buy.

Posted by Eddy Elfenbein on April 26th, 2010 at 7:32 am

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