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April 16, 2020 Baird Equity Research
Technology & Services
Business Process Outsourcing
Commentary from Bank Q1 Earnings Calls and CardFlight/Womply
INDUSTRY FLASH REPORT
Below is some commentary from JPM/WFC/USB/BAC/C Q1 earnings calls. We
also include some commentary from CardFlight and Womply data. The overall data Prices as of 4/15/2020
seems to imply overall retail/card spend down ~25-30% yoy in late March (USB way Mkt Cap
Ticker Price Rating Risk
worse due to heavy travel). JPM/WFC/USB/BAC are covered by Baird analyst David (mil)
George; Baird does not provide coverage for C. FIS $120.16 $74,860 O A
■ JPM commentary: FISV $93.66 $65,066 O L
- Aggregate spend down 13% yoy in March with trends continuing in April GPN $140.78 $42,558 O A
- Spend at supermarkets, wholesale clubs, and discount stores are starting to MA $257.14 $260,483 O H
normalize (from increased spending in March)
V $165.96 $375,899 O A
■ WFC commentary: Sources: FactSet and Baird Data
- ATM txns down 17% yoy in month of March
- Consumer spend down 25% last week
- Full month of March credit volume down 15% yoy
- Full month of March debit similarly down, but to less extent (down 5% yoy in March)
■ USB commentary:
- Merchant sales volumes down 50-60% yoy in the second half of March; was up
mid/high single-digits in Jan/Feb
- Raised mobile check deposit limits for many customers using the mobile app
- Within merchant business, ~28% of revenue is directly tied to travel/hospitality and
~27% is directly tied to retail (both significantly impacted)
- Airlines have been down 85-95% yoy depending on the week
- Assumes merchant continues to be down 50-60% yoy (base case for Q2)
■ BAC commentary:
- Credit/debit payments were growing 7-8% yoy in Jan/Feb and only grew ~2% in
March; has fallen into negative territory in April
- Total spending (cash from ATMs, checks, ACH, credit, debit) has gone from ~
$60-65 billion/week in Jan/Feb to low-$50 billion in mid-April (has stabilized around
this level the last few weeks)
- BAC Zelle txn growth was +76% in Q1 (BAC didn’t note Q4 transaction growth);
overall Zelle txn growth across all banks was +70% in Q4 (per Early Warning).
- BAC Zelle volume growth was +69% in Q1 (BAC didn’t note Q4 volume growth);
overall Zelle volume growth across all banks was +60% in Q4 (per Early Warning).
■ Citi commentary:
- Purchase sales grew ~10% in Jan/Feb; declined significantly in late March
- Seeing some early signs of activity picking up in China
- US card spend down ~30% in the last week of March (Travel down ~75%; Dining
and Entertainment down ~60%; Discretionary retail down ~50%; Essentials up
~10%)
- Expects pressure on purchase volumes to continue through Q2
■ CardFlight
- Over the past few weeks, transactions have been down ~50% and total $$ volume
has been down ~26-29% relative to 3/2-3/8 (used as baseline week)...we view
■
these as a reasonable yoy proxy for March exit rates.
Womply
- Industries appear to be fairly stable vs. last week except grocery, which has
decelerated to ~18% yoy growth (was ~30-40% yoy before).
[ Please refer to Appendix
- Important Disclosures
and Analyst Certification ]
David J. Koning, CFA Robert W. Bamberger, CFA Patrick A. Schulz, CFA
Sr. Research Analyst Research Associate Research Analyst
dkoning@rwbaird.com rbamberger@rwbaird.com pschulz@rwbaird.com
414.298.7494 414.298.5094 414.298.6218
Intended for dara.dierks@icrinc.com only. Property of Baird. Contact Baird for permission to share.
April 16, 2020 | Business Process Outsourcing Technology & Services
Valuation & Risks
FIS (FIS)
Valuation
Our $145 price target reflects ~21X our 2021E EPS of $6.94. This reflects ~35% premium to the current
S&P's NTM P/E, above the FIS/WP three-year combined average of 17%, as faster-growth Worldpay is
now in the FIS/WP fold and EPS likely grows faster over the next few years.
Risks
Risks include bank consolidation, bank spending fluctuations, acquisition integration, pricing pressure,
client concentration, and currency fluctuations.
Fiserv, Inc. (FISV)
Valuation
Our $112 price target reflects ~21.5X our 2021E EPS of $5.24. This reflects ~35% premium to the S&P's
NTM P/E, similar to FISV's three-year average of ~30%. We think faster growth profile is offset by slightly
higher leverage, resulting in an average premium of the past few years.
Risks
Bank consolidation, economic fluctuations, acquisition integration, acquisition not going through, pricing
pressure, regulatory pressure.
Global Payments Inc. (GPN)
Valuation
Our $160 price target reflects ~21X our 2021E EPS of $7.60, reflecting ~35% premium to the S&P's NTM
P/E (three-year average 27%; range 6-45% premium), given we expect very strong EPS growth off the
2020 base.
Risks
Risks include economic sensitivity, acquisition integration, currency sensitivity, regulation, litigation,
alternate payments systems.
MasterCard Incorporated (MA)
Valuation
Our $250 price target reflects ~28.5X our 2021E EPS of $8.75, reflecting ~100% premium to the S&P’s
NTM P/E, above the three-year average of 73% (five-year high of ~102%). Late in an expansion (or early
in recession), we think investors like the relative long-term resilience/secular growth of MA.
Risks
Risks include consumer spending fluctuations, regulatory risk, litigation risk, currency fluctuations,
international travel fluctuations, pricing pressure, alternative payment systems, acquisition integration risk.
Visa Inc. (V)
Valuation
Our $175 price target reflects ~28.5X our C2021E EPS of $6.11. This reflects ~82% premium to the S&P’s
NTM P/E, near the three-year high of 86% (above three-year average of ~54%). Late in an expansion (or
early in recession), we think investors like the relative long-term resilience/secular growth.
Risks
Risks include consumer spending fluctuations, regulatory risk, litigation risk, currency fluctuations,
international travel fluctuations, alternative payment systems, pricing pressure, acquisition integration risk.
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April 16, 2020 | Business Process Outsourcing Technology & Services
Appendix - Important Disclosures and Analyst Certification
Approved on 16 April 2020 14:30EDT/ Published on 16 April 2020 14:35EDT.
Covered Companies Mentioned
All stock prices below are the 4/15/2020 closing price.
FIS (FIS - $120.16 - Outperform)
Fiserv, Inc. (FISV - $93.66 - Outperform)
Global Payments Inc. (GPN - $140.78 - Outperform)
MasterCard Incorporated (MA - $257.14 - Outperform)
Visa Inc. (V - $165.96 - Outperform)
(See recent research reports for more information)
Rating and Price Target History for: FIS (FIS) as of 04-15-2020
04/03/17 05/02/17 07/17/17 08/02/17 10/09/17 01/23/18 05/08/18 10/30/18 12/18/18 02/05/19 03/14/19 03/18/19 04/30/19 07/11/19 09/16/19
O:$94 O:$96 O:$98 O:$102 O:$108 O:$115 O:$120 O:$115 O:$112 O:$115 O:$124 O:$132 O:$134 O:$145 O:$158
160
140
120
100
80
60
Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2
11/05/19 12/18/19 02/13/20 03/10/20 03/25/20
O:$162 O:$166 O:$172 O:$156 O:$145
Created by BlueMatrix
Rating and Price Target History for: Fiserv, Inc. (FISV) as of 04-15-2020
04/07/17 06/13/17 08/01/17 10/09/17 01/23/18 07/12/18 09/24/18 12/18/18 01/21/19 02/07/19 03/14/19 04/30/19 07/15/19 07/25/19 09/16/19
O:$64 O:$67 O:$68 O:$73 O:$80 O:$82 O:$85 O:$82 O:$88 O:$90 O:$104 O:$106 O:$110 O:$112 O:$122
130
120
110
100
90
80
70
60
50
Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2
11/06/19 12/11/19 12/23/19 02/03/20 02/17/20 03/10/20 03/25/20
O:$130 O:$135 O:$138 O:$142 O:$143 O:$126 O:$112
Created by BlueMatrix
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April 16, 2020 | Business Process Outsourcing Technology & Services
Rating and Price Target History for: Global Payments Inc. (GPN) as of 04-15-2020
04/03/17 05/04/17 07/21/17 08/03/17 09/28/17 11/08/17 01/22/18 02/15/18 03/29/18 05/03/18 07/16/18 10/16/18 10/30/18 12/17/18 02/13/19
O:$94 O:$98 O:$104 O:$106 O:$110 O:$115 O:$124 O:$126 O:$130 O:$132 O:$136 O:$142 O:$135 O:$130 O:$140
220
200
180
160
140
120
100
80
60
Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2
03/22/19 04/16/19 05/02/19 05/30/19 07/08/19 07/30/19 09/17/19 12/11/19 12/23/19 02/07/20 03/10/20 03/12/20 03/25/20 04/07/20
O:$150 O:$154 O:$160 O:$174 O:$182 O:$188 O:$203 O:$206 O:$212 O:$222 O:$202 O:$195 O:$170 O:$160
Created by BlueMatrix
Rating and Price Target History for: MasterCard Incorporated (MA) as of 04-15-2020
04/03/17 05/02/17 07/27/17 10/16/17 01/18/18 02/01/18 05/02/18 06/21/18 10/04/18 10/17/18 10/30/18 12/18/18 01/22/19 01/31/19 03/26/19
O:$135 O:$138 O:$150 O:$170 O:$182 O:$194 O:$210 O:$220 O:$234 O:$240 O:$235 O:$218 O:$226 O:$230 O:$256
350
300
250
200
150
100
Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2
04/16/19 04/30/19 07/18/19 07/30/19 09/03/19 12/09/19 12/23/19 01/21/20 03/10/20 03/24/20
O:$264 O:$278 O:$292 O:$300 O:$320 O:$330 O:$338 O:$348 O:$314 O:$250
Created by BlueMatrix
Rating and Price Target History for: Visa Inc. (V) as of 04-15-2020
04/03/17 04/21/17 06/22/17 07/20/17 10/02/17 10/25/17 01/18/18 02/01/18 06/14/18 07/18/18 09/13/18 10/17/18 12/18/18 01/22/19 04/16/19
O:$110 O:$112 O:$115 O:$122 O:$128 O:$130 O:$136 O:$146 O:$152 O:$156 O:$162 O:$168 O:$150 O:$152 O:$172
220
200
180
160
140
120
100
80
Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2
04/24/19 07/18/19 07/23/19 09/03/19 12/09/19 01/21/20 03/10/20 03/24/20 03/31/20
O:$182 O:$196 O:$200 O:$206 O:$212 O:$220 O:$196 O:$166 O:$175
Created by BlueMatrix
1 Robert W. Baird & Co. Incorporated makes a market in the securities of FIS, FISV, GPN, MA and V.
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