Electronic-payment processor First Data
First-quarter earnings were down 23% to $0.47, but allow me to sugarcoat that drop by saying that last year's first quarter benefited from the sale of First Data's two-thirds stake in subsidiary Global Cash Access, which added $0.21 to net income. Furthermore, the company also just booked $0.03 worth of integration-related expenses stemming from last year's acquisition of debit-card processor Concord EFS. Without those two items, earnings would have shown a healthy increase, as did revenues, which climbed by double digits to $2.48 billion.
First Data's three top segments -- payment services, merchant services, and card issuing -- posted solid revenue gains of 14%, 19%, and 8%, respectively. While earnings may have been disappointing, the company continues to generate impressive operating cash flows -- $523 million for the quarter. Over the past three years, free cash flows have ballooned by more than $1 billion to reach $2.1 billion. First Data has plowed much of that cash back into stock repurchases, thereby reducing its outstanding share count by 10%. During the first quarter alone, management actively bought back more than 25 million shares and still has another $1.9 billion earmarked for future purchases.
Whether it's buying a gift online, picking up a pair of shoes at the mall, or hitting the drive-thru at McDonald's for a Big Mac, cashless payments are on the rise -- and nobody processes more of them than First Data. While smaller rivals such as Global Payments
First Data is expecting its earnings per share to gain momentum in the second half of the year, and analysts are forecasting a final tally of $2.37. At current prices, that would place the company's P/E at less than 16 -- nearly the lowest it has been in the past five years. With operating margins expanding, Western Union's country-to-country transfers growing by leaps and bounds, and enough cash to support a recent tripling of the company's dividend, this wide-moat company may be playing its way into my portfolio. Maybe I could put it on my debit card.
Motley Fool Inside Value dives deep to uncover some of the market's best bargains. Get a free 30 day trial by clicking here.
Fool contributor Nathan Slaughter stopped carrying actual currency long ago and could not function without plastic. He owns none of the companies mentioned.