Sometimes you find a company that's just tough to value for one reason or another. But as I learned to my sorrow with Mercury Interactive (NASDAQ:MERQ), sometimes there's enough value to make a closer look worthwhile. The same goes for Synovus (NYSE:SNV), a financial services company that is a bit out of the mainstream, but still worth a look in my opinion.
In some ways, Synovus resembles Wisconsin's Marshall &Ilsley (NYSE:MI), a combination of a bank and a financial services company. Headquartered in Georgia, Synovus's bank operations are focused on the Southeast; the other half of the company's business comes from its 81% ownership of Total System Services (NYSE:TSS), or TSYS.
With all the current angst about banks, it may be ironic that Synovus's bank really did the best this quarter. While companywide net income was up about 19%, income from the bank was up nearly 22%, as both interest income and non-interest income grew strongly. Net interest margin improved considerably, helped by both an increase in assets (average loans were up 14%) and the favorable repricing of variable-rate loans.
On the TSYS side of things, net income growth was a more moderate 13% or so. Remember, though, that this company took some body blows last year when it lost major customers like Sears Holdings (NASDAQ:SHLD) and Bank of America (NYSE:BAC). On a positive note, TSYS did add processing agreements with Wachovia (NYSE:WB) and MoneyGram (NYSE:MGI) this quarter.
As things stand today, Synovus seems more or less fairly valued to me, but part of my valuation analysis includes a conservative estimation of future growth. Considering the quality of the bank, that may be understating its potential. There's a lot to like about Synovus -- it's more responsive to customers than big rivals like Wachovia or Bank of America, but boasts a more economical scale of operations than many of community banks that are snatching away deposits in this market. Whatever the case may be, don't let Synovus's status as "neither fish nor fowl" deter you from digging in and learning more about this quality financial services company.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
