Total System Services: What Should Investors Do Now?

With shares of Total System Services (NYSE:TSS) trading at around $23.33, is TSS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

earnings-header-clean

Total System Services reported Q4 revenue of $479.1 million, which was in-line with expectations. Q4 EPS came in at $0.32, which missed expectations by a penny. Gross margins increased to 34.1 percent. Operating margins decreased to 18.7 percent. Net margins remained steady at 12.7 percent.

For next quarter, the average estimate for revenue is $480.8 million. The average EPS estimate is $0.34. For the year, the average revenue estimate is $1.98 billion. The average EPS estimate is $1.44.

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On the positive side, Total System Services has shown growth. It certainly hasn’t been fast growth, but sometimes slow growth is best because the odds of sustainability increase. Total System Services also currently yields 1.70 percent. Once again, this isn’t overly impressive, but it’s not going to hurt, either. Another positive is a slight increase in cash flow. On the other hand, expenses have risen.

Let’s take a look at some important numbers for Total System Services.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio and balance sheet for Total System Services are both strong. Total System Services has a stronger debt-to-equity ratio than Heartland Payment Systems (NYSE:HPY) and Global Payments Inc. (NYSE:GPN). Total System Services also has the highest yield.

Debt-To-Equity

Cash

Long-Term Debt

TSS

0.16

$356.57 Million

$221.10 Million

HPY

0.46

$88.73 Million

$112.97 Million

GPN

0.79

$998.26 Million

$880.41 Million

 

T = Technicals on the Stock Chart Are Strong

Total System Services has performed well over the past three years. The stock doesn’t perform the way it had in the past, but not many investors would complain about the gains listed below, especially when they come with dividend payments.

1 Month

Year-To-Date

1 Year

3 Year

TSS

7.71%

8.96%

14.67%

67.57%

HPY

0.00%

0.34%

23.67%

107.00%

GPN

10.55%

9.45%

3.28%

9.80%

 

At $23.33, Total System Services is currently trading above all its averages.      

50-Day SMA

22.24

100-Day SMA

22.79

200-Day SMA

23.07

 

E = Earnings Have Been Inconsistent

Annual earnings have seen a downward trend over a five-year timeframe. On the other hand, revenue has increased since 2009. There have been no substantial moves for top-line or bottom-line growth. Therefore, you shouldn’t expect any major surprises in the near future.

2007

2008

2009

2010

2011

Revenue ($)in billions

1.66

1.71

1.68

1.72

1.81

Diluted EPS ($)

1.20

1.26

1.09

0.99

1.15

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

459.75

472.24

461.16

462.65

468.06

Diluted EPS ($)

0.30

0.32

0.30

0.35

0.32

 

T = Trends Do Not Support the Industry

Total System Services might be showing steady gains, but the growth potential seems to be limited. There is a lot of competition in the industry, the economic environment is shaky, and there are regulatory challenges ahead.

Conclusion

Everything about Total System Services is decent opposed to strong or weak. This includes margins, cash flow, yield, the balance sheet, and growth. This isn’t a dangerous place to be, but it’s not an exciting one, either.

Total System Services is a WAIT AND SEE.

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