Fiserv, Inc. (FISV)

Fiserv is a global leader in payments and financial technology, providing operating systems for 18,000 financial institutions in over 100 countries, and serving six million merchant locations. Its financial solutions reach nearly 100% of U.S. households through banking and retail transactions. Fiserv innovates transaction processing software to help clients succeed in a digital world. These solutions, such as online banking and digital card management, enable growth through the ease of “software as a service” for financial institutions and person-to-person payments. Fiserv has generated a stellar financial record, with ten-year compound annual growth rates of 11% for revenues and 16.5% for earnings. The stock has generated a 19% compound annual return since its original purchase in February 2012 and we think the stock is valued conservatively.

Founded in 1984, Fiserv’s roots lie in its core bank processing systems, which provide the applications banks use to run their businesses. This segment is characterized by low customer turnover and long-term contracts primarily for  small and medium-sized banks. It is very expensive to replace a core bank processing system and the success of the business reflects the quality of Fiserv’s management and financial technology. This business is a significant part of the company’s Financial Technology segment, which is 20% of total revenue. The other two segments, Merchants Acceptance and Payments & Network, account for 45% and 40% of revenues, respectively. The business has a sizable postage reimbursement component, which deducts 5% from the total revenues. The image to the left is taken from Fiserv’s 2021 annual report and summarizes the company’s purpose, values, and aspiration.

The financial technology industry is an attractive secular growth opportunity. Fiserv helps clients grow by offering software platforms designed to capture new services and new money flows via account processing, digital banking solutions, card issuer processing, network services, e-commerce, and merchant acquisition and processing. In the first half of 2022, total revenues grew over 10% and adjusted earnings per share grew over 16.5%. Management forecasts organic revenue growth of 9% to 11% for all of 2022 and an adjusted earnings per share gain of

17%. Our forecast for 2023 is for revenues to grow 5%, margins to improve, and earnings to grow in the low double digits. This would be solid performance in a recessionary environment. Management stated in its second quarter conference call that “an unprecedented confluence of macro factors is likely to impact the global economy in the period ahead. The demonstrated resilience of our business model, driven by the strength of our assets, balance sheet, and pipeline of innovation, should position us well to withstand potential challenges and deliver value for our clients.”


Management’s caution for 2023 relates to macroeconomic uncertainties such as inflation, interest rates, labor-force dynamics, and competition. Still, Fiserv’s valuation is attractive given its above-average growth prospects in the years ahead. We think the company is a dynamic player in a growing, technology-driven, competitive marketplace.

A brief review of the three operating segments follows.

Merchant Acceptance Segment (45% of total revenue): This segment is defined by management as “a wide range of commerce-enabling solutions and services for merchants of all sizes around the world.” Fiserv’s merchant business revenues are presently growing at 15%, with longer-term growth expected in the high single digits. Services include point of sale (POS) merchant acquiring and digital commerce services, mobile payment services, and security and fraud protection services. Innovation is key and the plan is to build capability in the restaurant vertical and then move into the services vertical. There are strong competitors, but trailing results suggest Fiserv is gaining market share.

The Clover operating system, acquired in the First Data acquisition in 2019, serves small to medium-sized merchants; the Carat operating system focuses on large enterprises. These merchant operating systems offer unified customer experiences across devices. Through acceptance of local, global, and emerging forms of payment, Clover and Carat appear to offer more options than the systems of competitors. The services help protect clients’ brands by securing data and ensure services are available, reliable, and at scale. Clover global revenue grew 24% in 2022’s second quarter, driven by volume growth of 27%, as well as by growth in software and services penetration.


Recent acquisitions such as Ondot, BentoBox, and Finxact provide strong brand and financial support for the new software platforms. Ondot was acquired by Fiserv for $220 million in 2022 and provides digital capabilities for over 30 million cards and processes more than 1 billion transactions per month. The software helps clients accelerate digital customer acquisition, drive digital commerce, increase card activation and usage, and reduce service costs. BentoBox was acquired in 2022 and expands Clover’s global dining solutions and industry-leading business management capabilities. Over 7,500 restaurant concepts worldwide rely on BentoBox elevated design, built-in marketing tools, and best-in-class customer experiences. Fiserv was an early investor in Finxact and acquired the business fully in 2022 for $650 million. The acquisition has carried Fiserv’s merchant clients into the future with an array of application programming interfaces (APIs), connectivity, and personalization capabilities.

Payment and Network Segment (40% of total revenue): Fiserv’s digital payment growth is driven by Zelle, which is owned by eight of the largest U.S. banks and speeds fee-free money transfers from person to person and to small businesses. Revenues grew 8% in the second quarter, as management expanded its partnership with Walmart. North American credit activity on file grew 14% versus the second quarter of 2021. Fiserv posted transaction growth of a strong 35% in the quarter, and its thousandth Zelle client went live in the quarter. Management expects Zelle to double Fiserv’s client base in the next two years. Zelle uses the Automated Clearing House (ACH) payment system to speed payments between banks. Without Zelle the transfer can take three days; with Zelle the money arrives within minutes.

Financial Technology Segment (20% of revenues): Core bank 

processing is the center piece of the Financial Technology segment and financial institutions rely upon the software platform, called Precision, to maintain deposit and loan accounts, post daily transactions, and optimize business processes. Banks rarely switch systems and typically sign five-year contracts that renew with high frequency and generate significant recurring revenues and free cash flow. Converting to a new processing system requires retraining employees and other highly expensive changes. In 2021, Fiserv’s core account processing business serving banks and credit unions added 48 clients.

We invested initially in Fiserv in the first quarter of 2012 at a purchase price of $16.65 per share. The stock now trades at $99 per share, down from a high of $127 in 2021. The stock sells at a discount to the market as well as to the financial technology sector. It has generated solid returns for years. Fundamentally, the company is doing well, thanks to strong execution and a broad portfolio of products and services.


Danaher Corporation (DHR)

Danaher is a science and technology innovator with businesses transforming the fields of life sciences, diagnostics, water quality, and product identification. With over $30B in revenues, the company is three times the size it was when we initially invested in 2008. Our central interest—the life sciences and water components—continue to be the core of the company. With profit margins 50% higher than the average company in the S&P 500, Danaher has outperformed the S&P 500 by 150% for the past ten years. While the stock is down about 25% year-to-date, we think management can create strong value through three areas: the spin-off of the environmental and applied solutions segment; further acquisitions utilizing the company’s strong free cash flow generation; and application of the Danaher Business System (DBS).

In 2023, Danaher will spin out the water quality and product identification businesses to create an independent, publicly traded company. The segment has nearly $5 billion in revenues, with broad geographic diversity. It has grown at a 5% annual rate for six years and has profit margins slightly higher than the S&P 500. Recurring revenues represent 55% through a razor/razor blade model from instruments and their consumables. In the product identification business—about 45% of the segment—a key brand is Videojet, which provides the printers and ink Coca-Cola bottling plants use to print lot codes on 10 to 20 million cans per day. We think the most interesting aspects of the segment are in the water quality platform—55% of the total segment. Core growth drivers here include water scarcity and drought conditions; increasing regulatory requirements; water resource sustainability; and client demand for full workflow solutions to manage water-related facilities. Core water businesses are Hach, ChemTreat, Trojan Technologies, and Aquatic Informatics. Each is a leader in its niche. The group spans the water cycle from the environmental management of water resources to commercial and industrial use to wastewater treatment. These businesses have grown at about a 6% growth rate versus their competitors in the low single digits. During COVID and the 2020 fiscal year, the water quality business grew slightly while its peer businesses contracted. Hach is the premier global brand in water quality analytics with deep expertise in applied chemistry and biology. Hach leverages its leading instrument installed base to incorporate data and insight through software and enable customers to move from preventative operational processes to predictive and prescriptive strategies. We envision retaining the new independent water and product identification business and adding to our position opportunistically.


Danaher is known for its prodigious generation of free cash flow—20% of annual revenues the past eight years versus an average above 9% for the S&P 500.  Management has successfully deployed the free cash flow in acquisitions and the acquisition capability is a core competence of Danaher. Going back to 1993, the company has acquired over 250 businesses—ranging from small product bolt-ons to the $21 billion acquisition of General Electric’s life sciences business in 2019. The GE life sciences deal was a home run as, right before COVID, Danaher acquired a leader in equipment and consumables for bioprocessing, which has grown dramatically due to the success of the COVID vaccines and subsequent additional investment by biopharma in many promising new drug therapies. At present, the company has limited debt leverage and could double its debt, giving it roughly $25 billion in acquisition capacity in the next twelve months. This implies management could acquire several billion in revenues at least, which could represent a series of catalysts for the stock. The company has not been acquisitive this year, and with valuations now down on many target companies, we think management must be assessing many potential opportunities. The opportunity for management to create value through acquisitions is intriguing for the next year.


In the mid-1980’s, Danaher was one of the first U.S. based companies to adopt kaizen, the Japanese business philosophy of continuous improvement. The use of kaizen led to the development of the Danaher Business System (DBS), which has now been emulated across dozens, perhaps hundreds, of companies as executives have left Danaher to lead other businesses. Danaher’s pictorial on DBS integrates the company’s five core values: the best team wins; customers talk, we listen; kaizen is our way of life; innovation defines our future; and we compete for shareholders. Management applies the principles and tools of DBS to all acquired companies. The acquired company adopts the Danaher approach to managing a business—executives are trained in the DBS. Time and again, acquired companies have improved. For example, at Cepheid, a diagnostics business acquired in 2016, Danaher management improved the time required for deploying new production lines by 50%, while using 40% less capital investment, and with 50% less manufacturing space. All this work was complete when COVID arrived, and Cepheid grew from $540 million in revenues in 2015 to $1 billion in revenues in 2019 to $3.5 billion in revenues in 2021. COVID supercharged the growth, but it was the implementation of DBS that enabled management to execute successfully on the growth opportunity. With ample cash for acquisitions, we expect management to acquire multiple businesses to which it will apply DBS to improve growth and profits. Over time, this will likely lead to an increase in shareholder value.