The migration to digital payments has been huge over the last decade. E-commerce is increasingly becoming the rule versus the exception, digital banking is on the rise, and better access to the internet is opening up new options for consumers around the globe to move and manage money. 

Though it often gets overlooked for digital payment network operators like Visa and Mastercard as well as fast-growing financial technology outfits like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ), Fiserv (NASDAQ:FISV) is no slouch. In fact, it was one of the best-performing fintech stocks of the 2010s, clobbering both the stock market overall and most of its peers with a more than 850% total return.

After a decade of massive growth, Fiserv (NASDAQ:FISV) consolidated with First Data in July 2019 with a $22 billion all-stock merger -- just in time for the coronavirus crisis. While not ideal timing, the disruption is proving to be an opportunity for Fiserv to offload unnecessary expenses and double down on its highest growth revenue streams. It's time to give this war-on-cash stock a little love.

Someone pictured offscreen holding a credit card and inputting the info into a laptop.

Image source: Getty Images.

A rough start to a new decade

Fiserv provides payment solutions to banks, financial institutions, and other organizations -- including ACH, bill payment, lending and credit solutions, financial software, and point-of-sale terminals through its Clover subsidiary. 

When adjusting for year-over-year comparability after the First Data merger, first quarter 2020 revenue increased 4% and adjusted earnings per share 16%. Free cash flow (revenue less cash operating and capital expenses) increased 3% to $760 million, good for a profit margin of 22%. Not bad considering the company is still working through acquisition costs related to First Data.

Of course, the majority of those results came before the wheels started to come off the economy. Fiserv said its merchant transactions business has been hit the hardest by the lockdown to halt the spread of the coronavirus, with year-over-year transactions down nearly 30% at the end of March. However, the majority of the business has been resilient. Spending may be down at physical points-of-sale, but e-commerce just got a massive shot in the arm. And Fiserv plays in this sandbox, providing digital payment software solutions to its customers (including tech powering Zelle, the smaller competitor to PayPal's Venmo and Square's Cash App) and other related data and security services.  

The company did pull the plug on any financial outlook, but some good news was offered. Merchant transactions had rebounded through April and early May, with declines in the low teens compared to 2019. Fiserv will still be a bet on economic recovery, but given its high profit margins and digital-centric business, it should be just fine during the current crisis.  

Righting the balance sheet

As of this writing, Fiserv stock is still down nearly 20% from all-time highs set in February 2020; and though the metric could deteriorate given the ugly results that are possible in Q2 2020 and beyond, Fiserv stock currently trades for a not totally unreasonable 24.4 times trailing 12-month free cash flow.

Once the dust settles, this fintech firm could emerge even more profitable. The company has ramped up its efforts at fully integrating First Data, and said it's upping its outlook for full-year 2020 synergies from $300 million to $500 million (basically, operating expenses it can eliminate due to redundancy). It's accomplishing this by consolidating real estate, data centers supporting its cloud software, and other back-office procedures. It expects a cost-saving synergy of about $700 million in 2021, as well as additional revenue due to the merger totaling about $600 million over the next five years.  

Of course, this cost-cutting to boost profitability is necessary. At the end of March, Fiserv had $896 million in cash and equivalents on the balance sheet, but $21.6 billion in long-term debt. Given its increasingly profitable scale and a quick rally in merchant activity, Fiserv isn't at risk of becoming insolvent anytime soon, but the debt is nonetheless worth keeping an eye on.  

Looking a few years down the road to a time when the coronavirus is in the rearview mirror, Fiserv should be more than fine. Digital-based finance and payments are on the rise and more important than ever before. A slim cash balance puts a dent in its overall strength, but Fiserv more than makes up for it with solid free cash flow margins and ample room to continue expanding. What is shaping up to be a very volatile year has me pausing for the moment with making a purchase, but this fintech deserves to be on your radar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.