Fiserv: Not Broken
A new addition to our portfolio.
On October 29th Fiserv’s stock crashed 44% after it halved its revenue growth forecast and cut its earnings outlook. That’s a pretty startling tumble, especially for a stock that was already down 40% year to date. Its even more startling when you consider that Fiserv had grown earnings by at least 10% per year for 39 years in a row! It was about as steady and stable of a compounder as they come.
This begs the question: is Fiserv broken?
We like to buy businesses in “replication mode,“ which means their future will resemble their past. We like businesses who have proven unit economics and merely need to continue replicating them into a large addressable market. We don’t like turnarounds or unproven businesses. These would be easy to find, except that we also insist on low valuation multiples and high free cash flow yields. So we often hunt for investments among historical compounders who, for one reason or another, hit an air pocket and de-rated. Then we have to ask, is the market over-reacting, or is the stock broken?