Bernstein: Fiserv’s third-quarter profit remains under pressure; fourth-quarter buybacks and faster growth in focus

Where did the third-quarter improvement show, and how great was the pressure?

Fiserv’s third-quarter adjusted net revenue fell 1% year over year, approximately 1% below consensus; adjusted earnings per share were $1.75, 2% above consensus but down 14% year over year.
Company-wide adjusted operating margin was 31.2%, down approximately 5.8 percentage points year over year and broadly in line with consensus; the merchant solutions margin fell to 28.7%, down approximately 8.5 percentage points year over year.
Financial solutions revenue grew 2% organically, 3% above consensus. Within that, the issuer business grew 7% organically, but the banking business still declined 5%; the company expects improvement in banking to begin to emerge in the second half of 2027.

Third-quarter merchant solutions organic revenue fell 2% year over year, with revenue 3% below consensus. Small merchant organic revenue fell 1%, while non-Clover small merchant revenue declined 6%, a steeper drop than the 5% decline in the previous quarter.
Clover revenue grew just 1%, below market expectations; excluding the impact of nonrecurring revenue such as an Argentina advance payment in the prior year, its processing revenue grew 12%. Clover transaction volume grew 9%, or 11% excluding the impact of a gateway conversion.
The company maintained its full-year guidance for organic revenue to decline 1% to be flat and adjusted earnings per share of $7.20 to $7.40. Its expectation for fourth-quarter merchant business organic revenue growth of 6% to 8% implies a marked acceleration from the third-quarter decline of 2%; Bernstein considers this a large step.
The acceleration depends on an easier prior-year comparison, transaction value growth, improvement in value-added services and progress in enterprise solutions. The company expects Clover revenue to return to double-digit growth in the fourth quarter.

The company raised Project Elevate’s annual cost savings target from $500 million to $1 billion, with the additional savings concentrated mainly in 2028 to 2029. Measures include consolidating overlapping products, exiting more than ten non-core products, streamlining processes and using AI in workflows.
The company expects at least a one-to-one return in cost savings on transformation spending and is targeting a long-term adjusted operating margin of 37%; its 2026 guidance is 31% to 31.5%, below 2025’s 37.4%.
Fiserv plans to repurchase $500 million of stock in the fourth quarter, having made no repurchases in the third quarter. The company repaid $800 million of debt in the third quarter; its leverage ratio was 3.1 times and is expected to be around 3 times at year-end.

Bernstein believes execution and business stabilization showed positive progress this quarter following several previous reductions in expectations; the resumption of buybacks and potential divestitures are also encouraging.
The firm maintained its market-perform rating and $60 price target. Company management said improvements in customer attrition and new signings are expected to have a positive effect on revenue after 9 to 12 months.