Global Payments Scales Up Yet Again

The lucrative and growing payments market is one that increasingly rewards scale, and the leading players are acting accordingly. First Data (FDC) and Fiserv (FISV) are pairing up, as are Fidelity National (FIS) and Worldpay (WP). While not on the same scale, JPMorgan (JPM) is also scaling up, recently announcing the $500 million acquisition of InstaMed to target the fast-growing healthcare payments vertical. Not to be outdone (or left behind), Global Payments (GPN) has announced an acquisition of Total System Services (TSS) that should boost it to around 8% share of the U.S. acquiring market while filling in some gaps in its covered verticals.

Fintech is still hot, and although not every analyst or investor is sold on Global Payments’ strategy of using wholly-owned software offerings to drive customer acquisition and retention for its payments business, the shares seldom trade at much of a discount. Although I don’t think Global Payments is particularly cheap, I believe today’s share price is a relatively fair reflection of the value of the business at this point.

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Global Payments Scales Up Yet Again

Fidelity National Information Services Offsetting Growth With Margins

Fidelity National Information Services (FIS) has been a so-so performer since my last update on the company in August of 2017. Although the shares are up around 10% since then, slightly better than the S&P 500, the shares have lagged Fiserv (FISV) and Jack Henry (JKHY). I believe this underperformance is due at least in part to FIS's slow pace of organic growth and the challenges the company faces in accelerating that growth to a meaningful degree.

Providing banking and payments technology to banks and other financial institutions remains a good business on balance, and FIS has opportunities to drive further margin leverage and/or pursue value-additive M&A. Even so, the total return potential here looks somewhat lackluster, suggesting the shares are an okay hold but not an especially exciting buy candidate.

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Fidelity National Information Services Offsetting Growth With Margins

Fidelity National Information Services Looks Ready To Grow Again

I can't say that FIS (NYSE:FIS) (also known as Fidelity National Information Services) hasn't felt more love this year. While some growth concerns have stalled out the stock a few times in the last three years, the shares have risen more than 20% year to date, outperforming peers like Fiserv (NASDAQ:FISV) and Jack Henry (NASDAQ:JKHY) and more or less keeping pace with First Data (NYSE:FDC). 

While FIS certainly isn't as cheap as it was, the shares still hold some appeal as the company looks toward improving underlying conditions. Not only is management executing very well with its integration of Sungard, it's leveraged to expanding interest margins among its bank customers, aging IT infrastructure, and growth overseas. With the potential to drive FCF growth in the high single digits to low double-digits, FIS's share price could approach $100.

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Fidelity National Information Services Looks Ready To Grow Again

Investopedia: Legal Unknowns Cloud Lender Processing Services Outlook

The fallout of the housing bubble and crash is still sorting out, but it looks like we're now at the point where regulators are going hunting for trophies to display to their still-angry voting constituents. While major banks continue to seek settlements for their part in the wrong-doing, Lender Processing Services (NYSE:LPS) is also finding itself in the crosshairs. Although this company's strong data and service offerings is likely to survive this mess on an operational basis, the legal liabilities and regulatory uncertainties could well weigh on the shares for some time to come.

Underlying Business Conditions Are Tough  
Absent some charges and adjustments, it was pretty clear from LPS's fourth quarter that operating conditions are still difficult. Revenue was down 14% this quarter, as transactions services revenue plunged 21% on lower default and loan facilitation service revenue. The company's data and analytics business fared reasonably well, though, and saw roughly 5% growth.

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Investopedia: Financial Services That Buffett Could Love

With Berkshire Hathaway's (NYSE:BRK.A) annual report in hand and the recent deal for Lubrizol (NYSE:LZ) still in the news, there is once again a fair bit of interest in speculating on what sorts of companies Warren Buffett would (or does) like. Though specific predictions of Mr. Buffett's moves are more often wrong, there are a handful of non-bank financial services stocks that investors may want to consider with an eye towards their franchise value and difficult-to-replace market niches. (For more, see Emulate Buffett For Fun And Profit - Mostly Profit.)

Making Payroll Services Pay 

Automatic Data Processing (NYSE:ADP) and Paychex (Nasdaq:PAYX) do more than just handle payroll (for large and smaller companies, respectively), but that is their signature business lines. There is a lot here that an investor seeking to emulate Warren Buffett should find attractive. (For more, see Buffett Picks To Coattail.).

This is a recurrent fee-collecting business; people get paid on a regular schedule and these companies can collect a small fee every time they do. It is also a bet on the recovery and prosperity of the country; more jobs means more payroll and more demand for payroll services (and Buffett is a noted optimist on the long-term prospects of the U.S. economy). Last and certainly not least, each company produces a "float" of money, money paid to the companies for payroll but not yet disbursed to employees, that can be profitably invested.

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