Fiserv Still Isn't Cheap Enough

What Happened?
Fiserv's (FISV) stock dropped about 20% by midday Tuesday on concerns that revenue and earnings growth are slowing. The company, which processes financial transactions for banks and brokerages, said in a conference call Tuesday morning that its earnings were likely to climb only 16%-18% next year compared with its target of 18%-20%. Fiserv earlier in the day announced third-quarter earnings per share of $0.34, beating consensus Wall Street estimates of $0.33, according to First Call.

What It Means for Investors
Despite the stock price drop, we still don't believe Fiserv represents a buying opportunity. Though the market arguably has overreacted to what is only marginally negative news, we have believed that Fiserv's stock deserved to have some wind taken out of its sails because of its premium value. The company had carried a price/earnings multiple of 48 before Tuesday, more than double the average of other data-processing companies.

That premium multiple becomes even more stunning when comparing Fiserv with a rival such as First Data , which offers relatively similar growth prospects. First Data plans to increase revenue and earnings per share by 13%-16% next year, primarily through internal growth. Meanwhile, Fiserv's revenue growth plan calls for an 8%-10% increase internally with the remainder of its 16%-18% target coming from acquisitions. Yet, First Data has recently traded at a price/earnings multiple of only about 14, a significant discount to Fiserv. So while the market has now beaten down Fiserv's stock quite handily, we still don't believe the company looks like a bargain.