(Bloomberg) — The lone analyst with a sell rating on Fiserv Inc. ahead of the company’s crushing stock selloff says the writing was on the wall for months.
For a large chunk of Wall Street, the fintech’s massive earnings miss was a surprise: Nearly 80% of the analysts covering Fiserv had buy-equivalent ratings as of earlier this week. But Dominic Ball, a 26-year-old analyst at Rothschild & Co Redburn, had slapped a sell-rating on the company in April.
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Dominic Ball, an analyst at Rothschild & Co Redburn. He speaks on “Bloomberg Open Interest.”Source: Bloomberg
On Wednesday, his skepticism was rewarded when the company’s shares tumbled a record 44% — wiping out some $30 billion in market capitalization — after it slashed its full-year earnings guidance and said it won’t be able to deliver on previous promises to investors. At ground-zero of Fiserv’s troubles was Clover, the flagship point-of-sale system that frustrated clients with its superfluous fees. It was a trouble spot that featured prominently in Ball’s research, which involved extensive conversations with the system’s users.
“There was a big dichotomy between what was happening on the ground, when we speak to merchants and retailers, versus what the investor base thought was happening,” the London-based analyst said, adding that clients have been quick to show their appreciation.
“I had so many emails, I couldn’t reply to everyone,” he said.
Read: Fiserv’s $30 Billion Wipeout Came After Client Revolt Over Fees
Fiserv’s blowup is the latest event to shine a light on an oft-cited bug in Wall Street’s research machine: The overly optimistic analysis often produced by the people charged with keeping investors abreast of companies’ strengths and weaknesses. Data compiled by Bloomberg show that only 5% of the ratings on S&P 500 companies are “sells.”
An extreme example of the trend came earlier this year, when shares of insurance giant UnitedHealth Group Inc — which sported a “buy” ratio of 97% — nosedived after the company slashed its annual forecast, replaced its chief executive officer and disclosed it is facing civil and criminal investigations over its businesses from the Justice Department.
Analysts have rushed to cut their ratings on Fiserv after Wednesday’s earnings, with many saying that a hoped for turnaround in the company’s fortunes is unlikely any time soon. For Ball, the company’s problems came into focus after doing a six month deep-dive on point-of-sales providers in 2023 as part of his coverage of competitor Toast Inc.
According to Ball, Clover’s shortcomings stemmed from its distribution and limited market share growth. While the system — which is used to handle and process transactions — did well among merchants doing between $200,000 to $250,000 in annual sales, the company had captured most of its market by the end of last year, he said.
Former CEO Frank Bisignano, who left the company in May to take a job in US President Donald Trump’s administration, had pinned much of the company’s forecasts for future growth on Clover continuing to outperform the market.
Ball placed a “buy” on Toast — which he sees as a superior product to Clover — in February 2024. The company’s shares are up almost 90% since then, as of Thursday’s close. In a Bloomberg Television interview on Friday, Ball said Toast is his top stock pick among payments companies.
“Toast is a materially underappreciated stock,” he said. “We really like Toast.” The company’s shares jumped as much as 5.8% in New York on Friday.
Fiserv’s shares, by contrast, have fallen some 70% through Thursday’s close since Ball issued a sell on April 17 of this year. In addition to Fiserv’s earnings cut, investors on Wednesday were also surprised by a revenue shortfall in the company’s financial-solutions division, which provides the underlying technology for thousands of banks and credit unions across the country.
“I think what has happened is that the management team has turned their focus very aggressively toward Clover because it was making the shares go down,” he said. As a result, “they may have under-invested in the rest of the business.”
Ball also theorized that Fiserv may have lost clients from “their core banking product and therefore that spilled over to everything.”
Fresh Face
Ball graduated from the University of Exeter in 2021. He did a short stint as an auditor during his studies, before becoming an equity analyst focused on fintech. His call on Fiserv drew plaudits from friends, clients and strangers alike, he said.
Clients “were very appreciative, definitely the ones that had sold,” he said.
As for Fiserv, Ball was quick to reiterate his sell rating even after Wednesday’s plunge, saying that the company was unlikely to revive its business anytime soon. In a note to clients, he wrote that “we do not view Fiserv as an investable asset during this adjustment phase.”
–With assistance from Matt Turner.
(Updates with Bloomberg Television interview comments.)
