Dominic Ball <\/p>\n
(Bloomberg) — The lone analyst with a sell rating on Fiserv Inc. ahead of the company\u2019s crushing stock selloff says the writing was on the wall for months.<\/p>\n
For a large chunk of Wall Street, the fintech\u2019s 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.<\/p>\n
Most Read from Bloomberg<\/p>\n
Dominic Ball, an analyst at Rothschild & Co Redburn. He speaks on \u201cBloomberg Open Interest.\u201dSource: Bloomberg <\/p>\n
On Wednesday, his skepticism was rewarded when the company\u2019s shares tumbled a record 44% \u2014 wiping out some $30 billion in market capitalization \u2014 after it slashed its full-year earnings guidance and said it won\u2019t be able to deliver on previous promises to investors. At ground-zero of Fiserv\u2019s 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\u2019s research, which involved extensive conversations with the system\u2019s users.<\/p>\n
\u201cThere 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,\u201d the London-based analyst said, adding that clients have been quick to show their appreciation.<\/p>\n
\u201cI had so many emails, I couldn\u2019t reply to everyone,\u201d he said.<\/p>\n
Read: Fiserv\u2019s $30 Billion Wipeout Came After Client Revolt Over Fees<\/p>\n
Fiserv\u2019s blowup is the latest event to shine a light on an oft-cited bug in Wall Street\u2019s research machine: The overly optimistic analysis often produced by the people charged with keeping investors abreast of companies\u2019 strengths and weaknesses. Data compiled by Bloomberg show that only 5% of the ratings on S&P 500 companies are \u201csells.\u201d<\/p>\n
An extreme example of the trend came earlier this year, when shares of insurance giant UnitedHealth Group Inc \u2014 which sported a \u201cbuy\u201d ratio of 97% \u2014 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.<\/p>\n
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Analysts have rushed to cut their ratings on Fiserv after Wednesday\u2019s earnings, with many saying that a hoped for turnaround in the company\u2019s fortunes is unlikely any time soon. For Ball, the company\u2019s 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.<\/p>\n
Story Continues <\/p>\n
According to Ball, Clover\u2019s shortcomings stemmed from its distribution and limited market share growth. While the system \u2014 which is used to handle and process transactions \u2014 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.<\/p>\n
Former CEO Frank Bisignano, who left the company in May to take a job in US President Donald Trump\u2019s administration, had pinned much of the company\u2019s forecasts for future growth on Clover continuing to outperform the market.<\/p>\n
Ball placed a \u201cbuy\u201d on Toast \u2014 which he sees as a superior product to Clover \u2014 in February 2024. The company\u2019s shares are up almost 90% since then, as of Thursday\u2019s close. In a Bloomberg Television interview on Friday, Ball said Toast is his top stock pick among payments companies.<\/p>\n
\u201cToast is a materially underappreciated stock,\u201d he said. \u201cWe really like Toast.\u201d The company\u2019s shares jumped as much as 5.8% in New York on Friday.<\/p>\n
Fiserv\u2019s shares, by contrast, have fallen some 70% through Thursday\u2019s close since Ball issued a sell on April 17 of this year. In addition to Fiserv\u2019s earnings cut, investors on Wednesday were also surprised by a revenue shortfall in the company\u2019s financial-solutions division, which provides the underlying technology for thousands of banks and credit unions across the country.<\/p>\n
\u201cI 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,\u201d he said. As a result, \u201cthey may have under-invested in the rest of the business.\u201d<\/p>\n
Ball also theorized that Fiserv may have lost clients from \u201ctheir core banking product and therefore that spilled over to everything.\u201d<\/p>\n
Fresh Face<\/p>\n
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.<\/p>\n
Clients \u201cwere very appreciative, definitely the ones that had sold,\u201d he said.<\/p>\n
As for Fiserv, Ball was quick to reiterate his sell rating even after Wednesday\u2019s plunge, saying that the company was unlikely to revive its business anytime soon. In a note to clients, he wrote that \u201cwe do not view Fiserv as an investable asset during this adjustment phase.\u201d<\/p>\n
–With assistance from Matt Turner.<\/p>\n
(Updates with Bloomberg Television interview comments.)<\/p>\n
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