In a strategic move, Total System Services Inc. (TSS) expanded its merchant acquiring services last week as it extended its long-term alliance with the US-based leading First Hawaiian Bank. However, other terms of the deal remain unveiled.
The deal blends well with Total System’s client-growth strategies as it provides merchant acquiring services to the 153-year old First Hawaiian Bank through its dependable processing platforms. Moreover, with over $16 billion of total assets, First Hawaiian Bank’s large scale of operations offers ample expansion opportunities for Total System’s transaction volumes.
On the other hand, First Hawaiian Bank appears to be confident about Total System’s much-acknowledged and secure card payment processing and point-of-sale solutions. Earlier this month, the company also extended its merchant acquiring relationship with Veracity Payment Solutions. Thus, Total System has been growing its contract portfolio through multiple alliances with respectable institutions across its operating area over the past few years.
Overall, these high-profile long-term contracts are crucial for Total System to boost its business portfolio and drive top-line growth. Additionally, the complete acquisition of TMS last year and expansion into merchant acquiring services will expectedly drive growth.
Going ahead, we believe that the overall market stability and healthy impact of the regulations in the card industry will help recover the number of client accounts and long-term contracts in the long run. These efforts will also help Total System mitigate risks related to currency and interest rate fluctuations along with stiff competition from dominant players such as Global Payments Inc. (GPN) and Alliance Data Systems Corp. (ADS).
Earnings Review
Total System’s fourth-quarter 2011 operating earnings came in 31 cents per share, in line with the Zacks Consensus Estimate but modestly higher than 24 cents per share in the year-ago quarter.
Revenues increased across all business segments and overall transaction volume and new accounts also trended higher. However, higher-than-expected cost of services and selling, general and administrative (SG&A) expenses along with higher taxes partly offset the revenue growth.
Total System is slated to release its first quarter 2012 earnings results after the closing bell on April 24, 2012. The Zacks Consensus Estimate for the quarter is currently pegged at 30 cents, up about 19% over the prior-year period, thereby reflecting a modest growth momentum.
Total System carries a Zacks Rank #2, which translates into a short-term Buy rating and a long-term Neutral stance.
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