I’m not going to sugarcoat it: September was a topsy-turvy month for the market. From interest rate speculation to presidential election rumors, there’s a lot of uncertainty out there, and it’s weighing on investor sentiment.
Meanwhile, the credit services industry has taken a beating over the past month, as confidence on both Main Street and Wall Street has waned.
Unfortunately, Total System Services, Inc. (NYSE:TSS) — my top pick for 2016 — hasn’t been an exception to the rule.
TSS Stock So Far in 2016
As a refresher, Total System Services is one of the world’s leading electronic payment processing companies, as it works with banks and other financial institutions across the U.S., Canada, Mexico, China and much of Europe. It currently serves 645,000 merchant outlets, and processes $117 billion in transactions each year.
I originally recommended TSS stock because it is a profitable company with limited exposure to the global headwinds that have been wreaking havoc on the S&P 500’s sales and earnings. And while it stumbled out of the gate in 2016, TSS staged an impressive rebound from February through the end of July.
However, the stock was hit again in late July, after its second-quarter earnings report. The results were generally solid: Revenue soared 66% and adjusted earnings jumped 28%, beating analysts’ EPS estimates by 2.8%.
However, including the impact of the recent TransFirst acquisition, unadjusted EPS was 15% lower than a year ago. It appears that some investors used the earnings report as an excuse to take profits.
Unfortunately, Total System hasn’t regained its momentum since the July selloff. In light of deteriorating buying pressure, I decided to downgrade the stock to a hold in my Portfolio Grader tool. What this means is that I’m no longer recommending TSS for new money.
At the same time, I want to stress that TSS still has potential as a growth stock. For the third quarter, analysts are looking for 71 cents in earnings per share on $1.16 billion in revenue. Compared with a year ago, this represents a 9% year-on-year drop in earnings and a 63% surge in sales.
I’m not concerned about the earnings decline, as it’s tied to the earlier TransFirst acquisition.
Total System will report its third-quarter results on or around October 25. I’m eagerly anticipating this earnings report, because it will set the tone for the rest of 2016 for TSS. My hope is that Total System Services will pull off a strong earnings beat.
I must also mention that TSS stock has a dividend payment coming up. Those who were shareholders of record on September 22 will receive 10 cents per share on October 3. TSS currently has a 0.9% dividend yield.
In the meantime, I recommend continuing to hold your TSS shares.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.