Analysts' Choice: Vantiv Finds Profits In The Middle

10/2/2017


  Recent Price
$71
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
24
  Shares (millions)
163
  Long-Term Debt As % Of Capital
66%
  52-Week Price Range
$73.14 - $54.38

Today's consumers have no shortage of ways to buy stuff: At stores or online, by using credit cards, debit cards, gift cards, even smartphones. Vantiv ($71; VNTV) doesn't care how you buy — as long as you buy. As the middleman between the merchant and financial institutions, Vantiv lets shoppers complete all these different forms of electronic payments.

Once a business unit of Fifth Third Bancorp ($27; FITB), Vantiv completed its initial public offering in March 2012. Early on, Vantiv took an integrated approach toward merchant payments, offering retailers an omnichannel program, an alternative to using separate products for different payment types. Fifth Third retains an 18% equity interest in Vantiv but now represents just 2% of its former subsidiary's sales, down from 8% in 2012.

Vantiv's Quadrix Overall score of 87 is dragged down by a middling Value score of 46.  But the stock looks especially timely, scoring in the top 25% of our research universe for Momentum and Performance. Vantiv is a Long-Term Buy.

Gaining scale

Vantiv has a 19% share of the U.S. payment-processing market, up six percentage points over the past five years. As merchants push for lower payment-processing costs, consolidation has become common within Vantiv's industry, where scale and switching costs provide crucial competitive advantages. A steady diet of midsized deals has helped Vantiv keep up with retailers' demands for more advanced payment solutions, while fending off new entrants such as Alphabet ($960; GOOGL) and Apple ($154; AAPL).

In August, Vantiv agreed to pay $10.4 billion in cash and stock for Worldpay Group, an online-payments company based in the United Kingdom. The deal boosts Vantiv's presence in Europe, and with online retailers and small businesses. The combined company should process $1.5 trillion in payment volume and 40 billion transactions a year, becoming the largest payments processor in the U.S. and Europe. Upon the deal's completion, Vantiv shareholders will own about 57% of the company, which will take Worldpay's name.

For now, the combination of rising volumes and pricing contributes to strong operating momentum. For the 12 months ended June, Vantiv grew per-share profits 19%, revenue 12%, operating cash flow 31%, and free cash flow 35%.

Vantiv shares have rallied 18% in 2017 and now trade at 24 times trailing earnings and 2.0 times trailing sales; both metrics exceed medians for the S&P 1500 data-processing industry by at least 5%. But the stock trades roughly in line with industry norms based on P/E ratios for estimated 2017 and 2018 earnings. And it looks cheap relative to peers based on trailing free cash flow and operating cash flow.

Analyst estimates have been rising since August, when management raised its 2017 profit guidance for the second time this year. Consensus estimates now expect per-share profits to climb 23% on 11% higher revenue in 2017, followed by 13% profit growth and 10% sales growth in 2018. An annual report for Vantiv Inc. is available at 8500 Governor's Hill Drive, Symmes Township, OH 45249; (513) 900-5250; www.vantiv.com.

VANTIV
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '17
0.83
vs.
0.70
12%
66.24
-
59.61
23 - 21
Mar '17
0.68
vs.
0.56
13%
66.47
-
59.60
24 - 22
Dec '16
0.75
vs.
0.65
12%
60.25
-
54.38
23 - 21
Sep '16
0.71
vs.
0.59
12%
59.62
-
52.45
24 - 21
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
3.58
2.73
0.00
60.25
-
42.01
22 - 15
2015
3.16
2.24
0.00
53.46
-
32.99
24 - 15
2014
2.58
1.87
0.00
35.11
-
28.45
19 - 15
2013
2.11
1.56
0.00
32.88
-
19.55
21 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
87
92
46
90
63
61
76

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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