Since the close of trading last week, shares of the core processing and payments company Fiserv (FIS +1.45%) had fallen an unimaginable 48% at the close of trading on Thursday. The company significantly missed Wall Street estimates for the third quarter of the year, lowered guidance, and essentially announced a strategic reset.
A shocking miss
Fiserv reported adjusted earnings per share of $2.04, missing estimates by over $0.60. Revenue of $4.92 billion also missed by $430 million. Even worse, management lowered its full-year adjusted earnings guidance by 16.4%, attributing the shocking results to soft revenues from the company's business in Argentina, which is experiencing a financial crisis, among other issues.
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Bloomberg also reported that many customers have been complaining about excessive fees from Fiserv's flagship point-of-sale payments business Clover. Fiserv's core processing business, which provides banks with key technology that powers their daily operations, also fell about 3% from the prior.
NYSE: FIS
Key Data Points
Management seems to have gotten too ambitious in their financial targets. Fiserv's CEO Mike Lyons said on the company's Q3 earnings call that "our challenges are largely driven by our own doing." The company also announced changes to its senior management structure and a new strategy that will focus on long-term client satisfaction. Fiserv plans to announce new mid- and long-term financial targets at its upcoming investor day in November.
Put this one on your watch list
I was certainly shocked to see this severe of a downward move. Fiserv went public in the 1980s and has been a phenomenal stock to own ever since. It's one of the three main players providing core processing technology that is entrenched in long-term banking contracts.
However, many of the country's banks are still using legacy core processing tech that is not nimble enough for today's world, so perhaps this finally caught up with the company, along with issues at Clover, which seem to stem from management's focus on near-term results.
That said, I would certainly add this one to your watch list. Fiserv's positioning in the space should still be very strong, so if management can clean up its act, this could prove to be a compelling buying opportunity. Conduct your own due diligence, but investors at the very least can nibble on the stock and then pay close attention to the upcoming investor day.
