Fiserv, Inc. (fi)) Since the second quarter revenue was released, stocks have fallen more than 13% last week. But was that really that bad? After all, it generated strong revenues and free cash flow. Fi stocks look cheap here. Shorter OTMs are placed for lower buy-in.
fi It is located in $142.50,from $165.98 Just before the second quarter revenue release on July 22nd and July 23rd. This is well below the $237.79 peak on March 3rd.
FI Stocks – Last 6 Months – Bar Chart – July 28, 2025
Based on its historical average and free cash flow, FI stocks are worth at least 28% or more $182.00 Per share.
Additionally, one way to set up a lower buy-in is the short money (OTM) placement option. This article delves into that.
Fiserv, the Payments and Financial Security Solutions Company, said its second quarter adjusted revenues rose 8% year-on-year, with earnings per share (EPS) rising 16%. This included an increase in the adjusted operating margin of almost 40% (39.6%) in the first half.
Additionally, free cash flow (FCF) for the second quarter increased significantly to around $1.2 billion, or 21.5% of revenue. Inventory analysis shows that in the 12-month (TTM) period, it generated $5.157 billion in FCF, while Fiserv states it is $529.9 billion on pages 3 and 8 of the deck.
This is a FCF margin of 24.4% using the inventory analysis figures and 25.1% using the Fiserv TTM number. It can be used to estimate the FCF over the next 12 months (NTM).
Management said its estimate was $5.5 billion for FCF in 2025. Let’s take a look at that. Analysts are currently forecasting revenue of $20.78 billion in 2025. Therefore, we use a FCF margin of 25%.
207.8 billion dollars x 0.25 = $5.195 billion FCF
However, analysts are forecasting revenue of $22.46 billion next year. Using 25% FCF margin, FCF can hit $5.615 Billion.
That means FCF could range from $5.2-5.6 billion over the next 12 months using a FCF margin of 25%. Therefore, an estimated $5.5 billion for management in 2025 could mean an increase in FCF margin.
However, if Fiserv reaches $5.5 billion this year and $5.6 billion next year, FI stocks could rise.
Fiserv does not pay dividends. Let’s assume you paid 100% of your free cash flow. What will happen to dividend yields?
One way to estimate this is to use its historical FCF yield. For example, given that today’s market capitalization is $778.9 billion, according to Yahoo!, the funds and its use of TTM FCF:
So let’s assume that the market will improve this yield to just 6.60% (i.e., its potential dividend yield, assuming a 100% FCF payment). That will happen if the next 2025 FCF reaches $5.5 billion as a management project (due to buybacks and improved prospects):
It’s a $5.5 billion FCF. 2025 / 0.066 = $83.33Billion MKT cap
That means that the market value of FI stocks could increase +7.0% It exceeds its market capitalization of $778.9 billion.
Furthermore, if next year, FCF reaches $5.615 billion (see above) and the FCF yield (i.e., potential dividend yield) improves to 6.50%:
$5.615 FCF 2026 is. / 0.065 = $863.9 billion MTK cap, or +9.5%
So over the next 12 months (NTM), the price target is +7.0% to +9.5%, or +8.25%. This will bring the price target to $154.49.
$142.72 x 1.0825 = $154.49
However, this is not the only way to predict price targets for FI stocks. Let’s also look at its historic price/revenue multiples.
For example, Morningstar reports an average forward price/revenue (P/E) over the past five years has increased by 17.1 times. It was 18.71x for an analysis of Alpha.
Currently, Fiserv management expects earnings per share (EPS) to grow between $10.15 and $10.30, or +15% to 17% from 2024.
So use a $10.23 midpoint EPS and a 17.9 forward P/E (average of two surveys):
$10.23 EPS x 17.91 = $183.12 Target price
In other words +28.3% At today’s price. What’s more, analysts are projecting an EPS of $11.82 next year, according to their demand for Alpha. Therefore, the result is a predicted price target. $211.58, or upside down from here +48%.
The bottom line is that FI stocks look very cheap using its historical P/E metrics.
A financial survey of 34 analysts found that the average price target is $187.00, while the average survey price for Bar Chart is even higher at $206.38.
This coincides with Anachart’s price target of $226.04 and an average of $214.12 for stock analyses from 26 analysts.
So the average survey price target from analysts is $208.39or upside from today +46%.
Using these three methods, we find that FI strains appear to be deeply undervalued.
FCF-based target… $154.49
P/E-based targets…………$183.12
Analyst target… $208.39
Average price target… $182.00or +27.7Today it’s over $142.50.
But for some reason, inventory is declining and setting a lower buy-in target may make sense. This can be done by selling a short money out-out (OTM) PUT option. This will allow investors to receive payments while waiting to acquire the shares.
For example, the $135 strikeput option, which expires on August 29, has a midpoint premium of $1.60 per PUT contract. This strike price is more than 5% lower than today’s price (i.e. money is out of reach) over the next 32 days.
It offers investors who make orders to “sell to open” immediate yields of 1.18% (i.e. $1.60/$135.00).
Fi expires on August 29th – as of July 28th, 2025
So, even if FI stocks fell to $135 before August 29th, investors will still have a break-even point of $135-$1.60 or $133.40. This is -5.39% below today’s price and offers good negative side protection.
Note that the delta ratio is only 20.66%, so the risk of inventory dropping so far seems low. Additionally, the potential benefits are attractive:
And think about this. If investors can repeat this play over the next three months, the expected revenue (ER) will be 3.50%. That’s even if the FI stocks remain flat or were below 5.39% until break-even.
The bottom line here is that Fiserv Stock looks very cheap. One way to play this and set a lower buy-in point is to place a short OTM at a nearby validity period.
On publication date, Mark R. Hake, CFA, had no position (directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published barchart.com
