Revenue Growth, Tax Cut To Drive Fiserv (FISV) Q1 Earnings

Fiserv, Inc. (NASDAQ:FISV) is scheduled to report first-quarter 2018 results on May 1, after market close.

The top line is expected to benefit from higher internal revenue growth and strong segmental performance, while the bottom line is likely to be positively impacted by tax benefits, profitable investments and operating margin improvement.

We observe that shares of Fiserv have rallied 17% over the past year, significantly outperforming the S&P 500’s gain of 10.4%.

Top Line to ImproveYear Over Year

The Zacks Consensus Estimate for revenues for the to-be-reported quarter stands at $1,446 million, reflecting year-over-year growth of 3.8%. The top line is expected to benefit from higher internal revenue growth and strong segmental performance on the back of enhanced digital payment services with updated technologies.

Revenues from Payments and Industry Products segment are likely to be driven by strong performance of card services and electronic payments business. The Zacks Consensus Estimate for this segment’s revenues is pegged at $840 million, indicating year-over-year growth of 5.8%.In fourth-quarter 2017, segment revenues increased 7.3% year over year to $865 million.

Revenues from Financial Institution Services segment are expected to suffer due to stiff competition. The Zacks Consensus Estimate for this segment’s revenues is pegged at $619 million, indicating year-over-year decline of 0.2%.In fourth-quarter 2017, segment revenues climbed 3.9% year over year to $668 million (backed by encouraging results of account processing and lending businesses).

The Zacks Consensus Estimate for total processing and services revenues and product revenues is pegged at $1,223 million and $225 million, reflecting year-over-year growth of 3.8% and 4.2%, respectively. In fourth-quarter 2017, revenues from total processing and services increased 7.3% to $1.27 billion while product revenues declined 0.4% to $246 million on a year- over-year basis.

In fourth-quarter 2017, total revenues rose 5.9% from the year-ago quarter to $1,516 million.

Earnings Likely to Grow on Tax Benefits

The new tax (Tax Cuts and Jobs Act, effective from December 2017) law, which reduced corporate tax rates significantly from 35% to 21%, will benefit Fiserv’s earnings in the to-be-reported quarter. Further, robust revenue growth, profit earned from new investments and improvement in operating margin are other factors, which are expected to boost the company’s bottom line. Notably, the consensus estimate for earnings per share is pegged at 73 cents, indicating year-over-year growth of 15.9%.

In fourth-quarter 2017, adjusted earnings rose 21.6% from the year-ago quarter to $1.41 per share. The company also witnessed a tax benefit of $275 million (on a GAAP basis) in the fourth quarter of 2017.

Our Model Doesn’t Suggest a Beat

Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Fiserv has a Zacks Rank #3 and an Earnings ESP of -0.06%, a combination that makes surprise prediction difficult.

Stocks to Consider

Here are some stocks from the broader Business Services sector that investors may consider, as our model shows that these have the right combination of elements to beat on earnings in first-quarter 2018:

Mastercard Incorporated (NYSE:MA) has an Earnings ESP of +0.08% and a Zacks Rank #2. The company is slated to report quarterly numbers on May 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

WEX Inc. (NYSE:WEX) has an Earnings ESP of +1.02% and a Zacks Rank #2. The company is slated to report quarterly results on May 3.

FLEETCOR Technologies, Inc. (NYSE:FLT) has an Earnings ESP of +0.74% and a Zacks Rank #2. The company is slated to report quarterly numbers on May 3.

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