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Stock Analyst Update

Fiserv's Growth Prospects Good, but Not Good Enough to Justify Price

Financial processor must prove it can expand beyond banks.

What Happened?
Fiserv (FISV) said Tuesday morning that it expects its 2001 earnings per share to grow roughly 18%, in line with its previously announced target. The reaffirmation of its goal came as part of the company's fourth-quarter 2000 earnings release, in which the financial transaction processor reported diluted earnings per share that rose 21% from the same period a year earlier and met Zacks consensus estimates of $0.34.

What It Means for Investors
This news isn't good enough to make us start pounding the table for the stock. Though Fiserv performed well in the fourth quarter and appears poised to do the same in 2001, we continue to question whether the firm's long-term growth prospects merit its relatively high-priced stock, which was trading at 33 times trailing earnings Tuesday morning and had rocketed higher by midday.

Fiserv must generate about half its earnings growth through acquisitions and most of the rest from cross-selling new products to existing customers, which is hardly a sure bet. Given the recent stock market decline, it's questionable whether more of the firm's banking customers will begin entering the brokerage arena in the near future, an area in which Fiserv hopes to cross-sell more processing services.

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Craig Woker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.