Back at the beginning of this year, I was invited along with a handful of my fellow stock pickers to play a little game at InvestorPlace.com. We each were to pick our favorite stock for the year, and at the end of 2016, we’ll see whose pick does the best. My top pick for this year is Total Systems Services (TSS).
As a refresher, Total System Services works with financial institutions around the world to issue credit and debit cards, expand the network of merchants who accept these cards and provide corporate payroll cards to employees.
Now, as we discuss where this stock is at today, I want you to remember my favorite adage that good stocks bounce like fresh tennis balls while bad stocks fall like rocks. And right now, TSS is illustrating this concept perfectly.
I chose Total System Services for my Top Stock this year for one simple reason: it has the fundamentals needed to bounce back from nearly anything the stock market has to throw at it. This is based on the strength of two powerful trends—improving consumer confidence and increased reliance on credit cards.
According to TransUnion, 60-day credit card delinquencies are expected to fall to about 2.1% in 2016, below last year’s rate of 2.5%. The number of credit cards is also expected to climb beyond the 360 million that are currently in circulation now. Not only that, but TransUnion also expects the average American consumer to carry over $5,200 in credit card debt soon.
As my long-time readers know, TSS stumbled back in late January, following its fourth-quarter earnings report. Sometimes, even when a company has excellent long-term prospects, there can be near-term dips. This knee-jerk reaction was caused by a minor earnings miss; Total System Services’ earnings of $0.57 per share missed the mark by a mere $0.03.
However, I’m happy to report that TSS has made a complete recovery, and then some. On Tuesday, TSS reported excellent operating results for the first quarter. Compared with the year ago quarter, earnings per share climbed 17.3% to $0.49 per share. Excluding the expenses related to TSS’s recent TransFirst acquisition, adjusted earnings per share was $0.66. This beat the $0.61 consensus estimate by a massive 8.2%. Meanwhile, total revenues rose 11.7% to $739.4 million. Analysts were looking for $713.5 million in revenue, so Total System Services posted a solid 3.6% sales surprise.
Better yet, Total System raised its full-year outlook. The company now expects adjusted earnings between $2.78 and $2.85 per share, on between $3.04 billion and $3.1 billion in net revenue. This represents 13% to 16% annual earnings growth and 22% to 24% annual revenue growth. This is also above the Street view of $2.61 EPS on $2.94 billion in revenue.
Unsurprisingly, TSS shares broke through a new high following this report. On the strength of Total System’s fundamentals, the stock has rebounded over 32% since the end of January. So it’s easy to see why TSS is my top “tennis ball” stock for 2016.
The question you might be wondering right now, though, is how can you ever be certain a stock is going to bounce like a tennis ball rather than simply fall like a rock? Well, the easiest way I know of is to plug any ticker you’re interested in into my Portfolio Grader tool.
In fact, if you’re looking to see what a winning stock looks like in that tool right now, simply check out Total System Services A-rating today.