July 1, 2008
Zacks Analyst Blog Highlights: Fiserv, Bank of America, W-H Energy Services, Smith International and Washington Federal
Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Fiserv Inc. (Nasdaq: FISV), Bank of America (NYSE: BAC), W-H Energy Services, Inc. (NYSE: WHQ), Smith International, Inc. (NYSE: SII) and Washington Federal, Inc. (Nasdaq: WFSL).
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Here are highlights from Monday's Analyst Blog:
Hold-Rated Fiserv Kept in Check
We continue to rate Fiserv Inc. (Nasdaq: FISV) a Hold. The company significantly exceeded our consensus expectations on both the top and bottom line, demonstrating superior execution in the quarter and the advantage of its relatively high service offering diversification which enabled the company to overcome pockets of weakness in lending services and certain software segments.
Fiserv recently announced the acquisition of CheckFree for $4.4 billion, or roughly $48/share. The deal is expected to be accretive to 2008 cash EPS. Fiserv management expects that CheckFree will generate higher organic growth for Fiserv.
However, the primary concern is the secular decline in the processing of checks due to their declining use. To fight this trend, Fiserv must be ready to win market share in this business, in case banks start to outsource it. We are also concerned about the company's highly leveraged balance sheet.
Meanwhile, management revised its guidance for 2008 to reflect the revised terms of the agreement with Bank of America (NYSE: BAC). Internal revenues are now expected to grow 4%-6%, down from the previous forecast of 5% - 7% while adjusted EPS from continuing operations is now expected to come between $3.28 and $3.40, down from the earlier expectation of $3.33-$3.47.
Fair Value on Smith/W-H Merger
Valuation concerns drove our April '08 downgrade of W-H Energy Services, Inc. (NYSE: WHQ) shares from Buy to Hold, which in hindsight turned out to be premature. We, however, had a pretty fruitful run with the stock, having upgraded it to Buy in the spring of 2005, when it was in the mid-$20s.
Following the merger agreement with Smith International, Inc. (NYSE: SII), which we expect to succeed without any competition or hurdle, WHQ shares are expected to trade in line with Smith's offer. The take-out multiples of 16.0x and 7.3x our 2009 EPS and EBITDA estimates, respectively, are fair given current peer group multiples. Our recommendation and estimates remain unchanged.
We view the transaction as a good strategic fit in terms of mix of products and services. The new company will lead to the creation of a stronger oilfield service franchise strengthened in both drilling and completion product and service offerings.
Initiating Washington Fed a Hold
We are initiating coverage on the shares of Washington Federal, Inc. (Nasdaq: WFSL) with a Hold rating and a six-month target price of $19.50 per share. WFSL operates as a non-diversified unitary savings and loan holding company.
During 2Q08 (ended March 31), the company reported diluted operating earnings of $0.34 per share, missing the consensus by three cents. The miss stemmed from a high increase in the provision expense, though the expansion in the interest margin was impressive, owing to WFSL's liability sensitivity.
Credit quality significantly worsened during the quarter and we anticipate the deterioration in the credit quality to continue, in the coming quarters, resulting in higher credit costs, which will be partially offset by the growth in the interest rate spread. Based on these results and its dependable capital position, we are installing our FY08 and FY09 earnings estimates at $1.46 per share and $1.52 per share, respectively.
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