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Total System’s (TSS) Revenue Base Grows Strong on Buyouts


Total System Services, Inc. TSS has been consistently riding high over the past few years, primarily driven by its series of solid acquisitions. One of its recent buyouts is iMobile3, a provider of private-labelled, small business solutions in the payments industry. This buyout enables the company to offer the best possible payment tools to its customers.

Another notable acquisition was of NetSpend in July 2013, which made Total System one of the largest program managers of dollars reloaded in prepaid cards, enhancing its footprint in the U.S. prepaid card industry.

To improve technology, scale and distribution capabilities in April 2016, the company purchased TransFirst, a major U.S. merchant solutions provider. Recently, it completed the buyout of the remaining 15% ownership of the Central Payment Joint Venture, thus bringing the company’s ownership level to 100%. Earlier in the year, Total System purchased Cayan, a payment technology firm, to expand its offerings to small and mid-sized U.S. businesses, which will further boost its merchant acquiring business.

The company’s accretive acquisitions along with its organic growth have allowed the company to enjoy sustained revenue growth over the past several years. The metric has witnessed a CAGR of 27% from 2014 to 2017 and the trend continued into the first half of 2018 with revenues up 12.8% year over year.

We believe that the company should retain its revenue momentum in the coming quarters on the back of a strong market position and an attractive core business that continues to be driven by new deals, renewed agreements, accretive acquisitions and expansion of service offerings. These will further fuel a strong contribution to the company’s segments, namely Issuer Solutions, Merchant Services and NetSpend. On a non-GAAP basis, net revenues are anticipated in the range of $3.7-$3.8 billion, reflecting year-over-year growth of 10-13%.

The company is also gaining from a lower tax rate, as a result of the Tax Cuts and Jobs Act. For the current year, the company expects reduction in the corporate tax rate in the range of 19% to 21% compared with a 32% to 33% effective range in 2017. This decline in tax rate should aid margins. The company has plans of accelerating sustainable investments, as a direct result of tax reform to benefit team members, customers and shareholders over the long term.

In a year’s time, the stock has returned 42.4%, comparing favorably with the industry’s nearly 34.2% rise. The company carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

A few other top-ranked stocks from the same sector are and Cardtronics PLC CATM, WEX Inc. WEX and Evertec, Inc. EVTC.

Cardtronics offers automated consumer financial services via a network of automated teller machines and multi-function financial services kiosks. This Zacks Rank #1 (Strong Buy) player managed to deliver an average trailing four-quarter beat of 27.17%. You can see the complete list of today’s Zacks #1 Rank stocks here.

WEX offers corporate card payment solutions in North and South America, the Asia Pacific and Europe. With a Zacks Rank #2 (Buy), the company delivered an average four-quarter positive surprise of 2.97%.

EVERTEC engages in transaction processing business, serving financial institutions, merchants, corporations and government agencies in Latin America and the Caribbean. Carrying a Zacks Rank of 2, the company came up with an average earnings surprise of 11.84% over the last three of four quarters.

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