Six months ago, Selena Maranjian described First Data
Big and growing: First Data is bigger now than it was six months ago, with a market cap of $37 billion, year-over-year revenue growth of 22%, and earnings-per-share growth of 15%. Pretty good.
Dominance: First Data had revenue growth of 16% in payment services, 47% in merchant services, and 26% in card-issuing services, its three largest divisions. None of these areas looks like trouble. In addition, First Data recently acquired Concord, thereby increasing its market share in the PIN-debit market from 10% to a more dominant 45%.
Fat profit margins: First Data's top-line growth has not come at the expense of profit margins. Year over year, net margins have improved by 1.5% to 18.3%, and sequentially, the net margins for its three largest divisions have remained constant or improved.
Defensive moat: Improving margins and subsidiary Western Union's 20% increase in consumer-to-consumer transactions are indicators of the strength of First Data's moat. Furthermore, several recent acquisitions widen the moat not only by absorbing new customers but also by reducing the number of competitors in the marketplace.
However, the loss of J.P. Morgan Chase's
Lofty goals: With such robust growth numbers, including a sequential increase in the number of Western Union agent locations from 188,000 to 195,000, it still looks as though First Data's trying to take over the world.
Room for growth: First Data is not growing as fast as some of its smaller competitors, such as Global Payments
Reasonable valuation: With a price-to-earnings ratio near 20, First Data's valuation is slightly better than when Selena looked at it.
Thus, the semiannual checkup has revealed potential future challenges to the moat. But overall, First Data still has the compelling attributes that attracted Selena's attention, so it makes sense to continue with a buy-and-hold strategy.