Total System Services Tied Closely to Consumer Spending

Total System Services (TSS) is one of several companies in the payment chain between retailers and your bank. As such, its fortunes are tied closely to consumer spending cycles and debt. Household deleveraging during the recession has hurt, but nobody expects credit and debit card usage to disappear soon.

Total System Services is is a global payment solutions provider serving both financial and nonfinancial institutions. Its services are divided into three operating segments, North America Services, which accounted for 51.4 percent of revenues in 2011; International Services, which accounted for 21.6 percent; and Merchant Services, which accounted for 27 percent.

Based upon public market data, TSS calculates that it provided issuer processing services for 18 percent of the domestic consumer credit card accounts in the market, 51 percent of the domestic commercial credit card accounts, 66 percent of the Canadian credit card accounts and 16 percent of the Western European credit card accounts.

“We believe that we are the second-largest processor of merchant accounts and process transactions for approximately 19 percent of all bankcard accepting merchant locations in the United States,” TSS reported. “Our direct merchant acquirer business is ranked as the 10th largest merchant acquirer by dollar volume according to The Nilson Report dated March 2011.”

Total System Services has a market cap of $4.39 billion in a sector, information technology services, where the average company size is $9.72 billion. Its trailing 12-month P/E ratio is 19.50 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.73, compared to 1.09 for the sector.

Its projected earnings per share growth for the coming year is 10.85 percent, compared to a sector average of 13.02 percent.

Difficult period

Wall Street is generally positive on TSS, with buy or outperform ratings from Deutsche Bank, JMP Securities, and Jefferies. Raymond James expects the stock to underperform.

“TSS continues to navigate through a difficult period for its financial institution clients, some of whom experienced considerable financial losses in the recent recession,” S&P analysts wrote in early May. “The environment is improving gradually after recent credit card regulation and a period of declining card issuance.”

S&P rates the stock at neutral.

Total System Services next reports on July 24.