Merchant Services (25%) provides merchant services to financial institutions and other organizations primarily in the U.S.

10  Download (0)

Full text


Total System Services Inc.




Risk Level * Low,

Type of Stock Large-Growth

Industry Financial Trans

Zacks Industry Rank * 48 out of 267 We upgraded our recommendation on Total System to

Outperform as its strategic acquisitions are reaping positive results. Alongside, a diversified and restructured portfolio, strong network alliances and technical competence augur long-term growth. Improved cash flows also indicate timely reduction in debt, paving the way for higher shareholder return. The first-quarter earnings fell short of the Zacks Consensus Estimate though it was in line with year-ago period. All but Merchant Services contributed to higher revenues, partly offset by higher expenses. However, transaction volume, new accounts and cash flows improved. Moreover, increased competition, regulatory challenges, exposure to interest rate, foreign exchange volatility and a tepid earnings guidance raise concern.

Current Recommendation


Prior Recommendation Underperform Date of Last Change 07/11/2014

Current Price (07/10/14) $31.69 Target Price $38.00 52-Week High $33.30 52-Week Low $25.28 One-Year Return (%) 24.71 Beta 1.16

Average Daily Volume (sh) 991,810

Shares Outstanding (mil) 189

Market Capitalization ($mil) $5,989

Short Interest Ratio (days) 2.74

Institutional Ownership (%) 72

Insider Ownership (%) 4

Annual Cash Dividend $0.40

Dividend Yield (%) 1.26

5-Yr. Historical Growth Rates

Sales (%) 4.4

Earnings Per Share (%) 7.2

Dividend (%) 11.2

P/E using TTM EPS 19.3

P/E using 2014 Estimate 18.2

P/E using 2015 Estimate 15.7

Zacks Rank *: Short Term

1 3 months outlook 2 - Buy

* Definition / Disclosure on last page


Revenue Estimates

(In millions of $)

Q1 Q2 Q3 Q4 Year

(Mar) (Jun) (Sep) (Dec) (Dec)

2012 461 A 463 A 468 A 479 A 1,871 A 2013 449 A 462 A 571 A 583 A 2,065 A 2014 593 A 596 E 621 E 648 E 2,458 E

2015 2,694 E

Earnings Per Share Estimates

(EPS is operating earnings before non-recurring items, but including employee stock options expenses)

Q1 Q2 Q3 Q4 Year

(Mar) (Jun) (Sep) (Dec) (Dec)

2012 $0.32 A $0.37 A $0.35 A $0.35 A $1.39 A 2013 $0.36 A $0.37 A $0.45 A $0.45 A $1.63 A 2014 $0.37 A $0.41 E $0.48 E $0.48 E $1.74 E 2015

$2.02 E

Projected EPS Growth - Next 5 Years % 10



Founded in 1982 and based in Columbus, Georgia, Total System Services Inc. provides electronic payment processing, merchant services and related services to financial and non-financial institutions in the U.S. and internationally.As of Dec 31, 2013, the company had 9,600 full-time equivalent employees. Total System is one of the world s largest companies for outsourced payment services, offering a broad range of issuer- and acquirer-processing technologies that support consumer-finance, credit, debit, healthcare, loyalty and prepaid services for financial institutions and retail companies in more than 80 countries across the Americas, EMEA and Asia-Pacific regions. The company s services are divided into three broad operating segments:

North America Services (accounted for 46% of gross revenue in 2013) provides services to clients in the U.S., Canada, Mexico and the Caribbean. Total Systemprocesses information through its cardholder systems and provides issuer account solutions for financial institutions and other organizations throughout the U.S.

International Services (19%) provides services to clients in Europe, India, the Middle East, Africa, Asia Pacific and Brazil. Total System processes information through its cardholder systems to international financial institutions.

Merchant Services (25%) provides merchant services to financial institutions and other organizations

primarily in the U.S.

Effective third-quarter 2013, NetSpend (10%) has been included as the fourth operating segment of Total System. Acquired in Jul 2013 for about $1.4 billion, NetSpend offers reloadable prepaid debit and payroll cards as well as alternative financial services to the under-banked and to other consumers in the U.S. Total System raised $1.1 billion through a two-part note offering in May 2013 to fund the acquisition. One set of 5-year notes worth $550 million carries an annual interest of 2.375%, while the remaining $550 million worth of notes are due to mature in 10 years and bear annual interest of 3.75%.

The company primarily functions through four business operations: Electronic payment processing, merchant services, reimbursable items and other services.

Electronic payment processing services include providing issuer processing services for consumer credit, retail, debit, stored value, government services and commercial card accounts. Merchant services include processing services, acquiring solutions, related systems and integrated support services. Reimbursable items are receipts for out-of-pocket expenses as revenues and expenses. The largest reimbursable expense item, for which clients reimburse the company, is postage. Changes in postal rates as well as volume of mailing activity by its clients affect the company s reimbursable items. Other services include business process management, mail and correspondence processing, tele-servicing, data documentation, offset printing, collections, and account solicitation and client services.

Total System continues to develop and enhance its processing solutions by developing solutions and strategic acquisitions to expand its service offerings. In 2008, Total System acquired Infonox for an aggregate consideration of approximately $50.6 million, with contingent payments over the next three years of up to $25 million, based on performance.

In order to divest its non-strategic businesses, Total System sold Total Debt Management Inc. (TDM) in Aug 2009, followed by the sale of TSS POS Systems and Services LLC (TPOS) in Sep 2010. In Apr 2010, Total System acquired 51% ownership of a newly formed company named First National Merchant Solutions LLC (FNMS), under a joint venture with First National Bank of Omaha (FNBO), for approximately $150.5 million. FNMS is the name under which FNBO currently conducts its merchant


activities. On Jan 1, 2011, Total System acquired the remaining 49% of FMNS for $169.6 million. Following the completion of the acquisition, Total System has renamed FNMS as TSYS Merchant Solutions (TMS).

Additionally, in May 2011, Total System acquired TermNet Merchant Services, which is the 52nd largest merchant acquirer in the U.S. by dollar volume, according to The Nilson Report. The company has been re-branded as Total System and fully integrated into TMS. In Oct 2011, Total System purchased the merchant portfolio of Florida-based Vanguard Payment Systems Inc. In Aug 2012, Total Systemformed a joint venture (Central Payment Joint Venture (CPay)) with Central Payment Co. LLC by buying a 60% stake in the privately-held direct merchant acquirer for $66 million, and inflated this holding to 75% in Feb 2014. In Dec 2012, the companyacquired Utah-based privately-held payment solution provider ProPay

for an undisclosed amount.


The acquisition of NetSpend has made Total System the 2nd largest program manager of dollars reloaded in prepaid cards as per the Mercator Advisory Group, thereby enhancing its footprint in the U.S. prepaid card industry and bolstering long-term growth through a diversified portfolio. With over 2.4 million accounts, 500 retail distributors and 130,000 reload locations; NetSpend has a wide distribution network for its prepaid cards and card solutions that are offered through its strong online, mobile and direct marketing channels. NetSpend covers less than 5% of this field of payments, which is further expected to double over the next 4 5 years, laying ample scope of growth for Total System and stimulating conversion of a large chunk of its pipeline accounts in the next 2 years. Additionally, NetSpend s top-line CAGR was 22% in the last 5 years until 2012. It further added over 4,000 retail locations and over 80 new PayCard clients, recording over 20% growth in direct deposit active cards and gross dollar volumes (GDV) in 2013 and first-quarter 2014. This also expanded earnings growth to 18% in 2013, beating management guidance, and generated adjusted EBITDA of about 16%, well within the guided range. While the acquisition is expected to be accretive to earnings within its first year, it also validates the company s bright top-line and adjusted EBITDA guidance in the band of 17 20% in 2014, both up from the 2013-levels.

While revenues from international segments remain volatile owing to regulatory and economic challenges, merchant acquiring services have consistently been in focus given the growth in direct businesses and higher sales productivity. The emphasis on shifting conversion pipeline is also helping North America deliver positive results with 3.6% year-over-year revenue growth in 2013 and 9.3% in first-quarter 2014. Consequently, Total System s total revenue beat the $2 billion mark for the first time with growth of 14% in 2013, primarily driven by spectacular over 25% growth in the second half of 2013 itself, followed by 32% accretion in first-quarter 2014. In the past, top line swung to growth since the second quarter of 2010, following which revenues improved 3.4% in 2012. This was backed by 5.3% growth in 2011, 2.4% in 2010 and a decline of 2.0% in 2009, reflecting steady recovery. Higher growth traction also spurred same-client transaction volumes that grew by 5.3% in 2010, 11.2% rise in 2011 and 12.0% in 2012, followed by double-digit growth in 2013 and first-quarter 2014 as well. Moreover, total cardholder transactions witnessed double-digit growth of 15.2% for the 13th consecutive quarter, followed by 7.9% growth in first-quarter 2014. The revenue recovery is believed to improve in the international sphere as well as with the company s leading technology platform, improved pricing, expansion in debit processing, and healthy consumer spending. Additionally, Total System bolstered its merchant acquiring portfolio with the complete acquisition of FNMS, TermNet and Vanguard Payment Systems. The acquisitions of ProPay and a 75% stake in CPay are further enhancing Total System s growth prospects within the small, medium and micro-merchants market. Overall, total acquisitions added 2.9% to top-line growth in 2011, 1.8% in 2012 and significant 16.7% in 2013. Management expects an expansion in its contribution to the financials in 2014 and beyond, perking up growth as well.


Additionally, with a current ratio of 2.1:1, at the end of Mar 2014, the company appears well-equipped to meet most of its capital expenditure needs through internal funds, while also indicating disciplined working capital and expense management. After deteriorating in 2013, operating cash flow rebounded by surging 183.8% year over year to $148.7 million in first-quarter 2014 along with robust accretion in free cash flow, signaling a positive outlook for 2014 as well. Previously, operating cash flow had improved to $455.8 million in 2012 from $436.3 million in 2011 and $389.2 million in 2010. While debt leverage has deteriorated from historical levels owing to the NetSpend acquisition, management expects to reduce its debt as soon as possible and sustain a debt-to-EBITDA of 2.0x in near future. The company also reduced its debt by $122.5 million in the second half of 2013 and by about $22 million in first-quarter 2014, thereby improving its financial leverage to 2.27x as of Dec 2013 from 2.62x as of Jul 1, 2013. Efficient capital generation is also reflected by the 42.9% dividend accretion made in Oct 2011 along with inflated share buybacks, which were expanded from prior 20 million shares to up to 28 million shares in Jan 2014. Going ahead, the company s growth potency should continue to support efficient capital deployment, thereby returning value to shareholders and instilling confidence for future growth.

The electronic payment processing services revenues are generated from charges based on several factors, one of which is the number of accounts on file. After posing weak trends and declining about 1% from 2009-level to 342.9 million in 2010, accounts on file witnessed spectacular growth of 17.9% year over year in 2011, followed by increase of 18.6% in 2012, 12.9% to $541.1 million in the 2013 and 16.2% in first-quarter 2014, given the new client growth and retention of existing clients across sectors along with the strategic acquisitions made in the past couple of years. In Jul 2013, Total System was also rewarded the most prestigious Europay/MasterCard/Visa (EMV) certification, which now enables it to process EMV chip-based payment transactions, thereby paving the way for higher card volumes and accounts on file. While this growth trend vouches for a superior performance ahead, Total System s vigorous efforts at divesting redundant operations and streamlining its overall expenses to execute its international expansion as well as other efficient client growth strategies have started showing results. Moreover, the company benefits from an experienced and talented workforce, which should further enhance its operating leverage.

Meanwhile, the ongoing market recovery is regrouping the confidence of the consumers, which in turn is leading to an improvement in client activity. As a result, Total System is also benefiting from a recent spurt in total merchant acquiring services, wherein the company holds the 7th largest position as of Mar 2013 as per the Nilson Report. In the past few years, Total System boosted its contracts portfolio by attaining valued long-term contracts, both in the U.S. and internationally, from banking giants, superior financial institutions and retailers like Western Union, PayChex, Key Bank, First Data Resources LLC, Bank of America and Walmart, all of which continue to be fruitful for revenue accretion. Even the technological advancements through the EMV certification, TSYS PRIME 4 card management solutions, TS2 outsourced payment processing solution, VAR Partner Connect Program and Mobile App are further expected to drive growth. Moreover, the company s latest connected mobility service is expected to cater to 24 billion connected devices by 2020, from the current market of 9 billion customers, according to a research released by Groupe Spéciale Mobile Association (GSMA) in Oct 2011, laying higher growth opportunities. Overall, these high profile long-term acquiring services and technology contracts are crucial for Total Systems to boost its business portfolio and top-line growth.


Following the trend in 2012, total expenses surged 15.4% in 2013 against 14% top-line growth, primarily driven by higher operating and acquisition expenses. Total expenses further rose 36.9% year over year in first-quarter 2014. As a result, operating margin reduced to 13.6% in first-quarter


2014 from 16.5% in the year-ago period, 18.1% in 2013 and 19.1% in 2012. This also compared unfavorably with management s prior projection of 22 24% in operating margins in 2013 as well as the historical highs of 28.6% in 2008 and 27.2% in 2009. Lower margins also include the impact of price compression, loss of portfolio sales and currency impact along with the continued tepidity in the credit card market. Growth outlook for operating margins in 2014 also appears stressful and indefensible given additional expenses related to the NetSpend acquisition as well as loss of revenues from the discontinued operations in Japan. This is also reflected in management s growth projection of operating earnings per share in the band of 10 12% in 2014, which is noticeably lower than 18% growth recorded in 2013.

The cash outlays on acquisitions and technological developments have taken a toll on a healthy cash flow growth trend. Adverse asset-liability changes as well as acquisitions and software purchase payments have previously limited operating cash flow growth in 2010 and again to $452.4 million in 2013. Even free cash flow had declined to $258.6 million in 2013 from $338 million in 2012. Subsequently, expected higher debt obligations, expense flow and minimal synergies from NetSpend in 2014 raises caution on cash flow growth in the near future. Additionally, Total System is significantly exposed to interest rate risk associated with the investment of available cash as well as foreign exchange risk, primarily for which the company has not entered into foreign exchange forward contracts for risk mitigation. The hike in total debt ($1.45 billion at Mar-2014 against $202.2 million in 2012) also augments the borrowing costs, further dragging the debt leverage, which along with lower cash flows had deterred share buybacks for most of 2013 and so far in 2014. These factors have been reducing the dividend payment as well. Dividend payment on common stock decreased to $53.9 million in 2011 from $55.1 million in 2010, $55.2 million in 2009 and $655.2 million in both 2008 and 2007. Although dividend payments had thereafter improved to about $94 million in 2012, these again reduced to $56.5 million in 2013, in turn reducing shareholder return in the last couple of years. Going ahead, the prevalent global economic volatility continues to offer ample stress tests to the company, which may have adverse implications on margins and sustained growth.

The global payments industry is intensely competitive and Total System faces intense competition from data processing, bankcard computer service firms and third-party software vendors within the U.S. as well as from international processors and third-party software vendors. This implies that Total System has a very dynamic and strong peer group that aggressively competes on various crucial operational factors such as price, system performance and reliability, breadth of features, functionality, disaster recovery capabilities, business continuity preparedness and data security. Moreover, the direct and indirect businesses within the merchant acquiring segment faces headwinds from price competition and consolidation within the global market. This is evident from the sluggishness that has crept into the segment over the past few quarters. Given the volatile macro-economic factors, regulatory challenges and sluggish fundamentals, the company could lose edge over its competitors going ahead. Further, the regulatory measures enacted in the U.S. impose numerous costly compliance burdens on the company and its customers, which could lead to increased service costs and legal compliance costs.

The company has a significantly high backlog of accounts. As of Dec 31, 2013, Total System had a pipeline of approximately 96 million accounts, which are expected to be converted by Dec 2014. However, timing is an important factor and any delay in the result will adversely affect the top line and expenses. Overall, given the likeliness of ongoing cutbacks at card issuers and slow conversion of accounts in pipeline, which also increases expenses, the company s client accounts warrant a challenging outlook for 2014 and beyond.



Total System Miss Estimates, Revenues Up Apr 22, 2014

Total System reported first-quarter 2014 operating earnings of $0.37 per share. While the bottom line was a penny higher than the year-ago quarter figure, it missed the Zacks Consensus Estimate by $0.02 a share.

Including acquisition intangible amortization, share-based compensation and the Net Spend acquisition-related expenses, Total System s reported net income was $0.26 per share against $0.31 in the year-ago quarter. Net income attributable to shareholders decreased 13.5% year over year to $49.3 million.

Results reflected revenue growth in North America and international segments along with an increase in overall transaction volume and new accounts. As well, the inclusion of NetSpend as an operating segment resulted in revenue accretion. However, lower revenues from the merchant services, higher expenses and cost of services deteriorated the bottom line, although operating and free cash flow surged.

Behind the Headlines

Total revenue surged 32.1% to $592.8 million, but lagged the Zacks Consensus Estimate of $612 million. Reimbursable items dipped 1.1% year over year to $60.1 million. Sales volume from the direct merchant business climbed 6.4%, although point-of-sale (POS) transactions decreased 10.6% on a year-over-year basis.

On a geographical basis, quarterly revenues from North America improved 9.3% year over year to $262.2 million, while that from international services inched up 1.8% to $82.4 million. However, revenues from merchant acquiring services declined 7.7% to $122.7 million. Meanwhile, revenues from NetSpend stood at $132.6 million, substantially up from $104.1 million in the last reported quarter, driven by gross dollar volume (GDV) that grew 22.1% and in direct deposit customer base. Inter-segment revenues deteriorated 46.9% year over year to a negative $7 million.

Additionally, as of Mar 31, 2014, total number of accounts on file was 556.2 million, up 16.2% from 478.5 million at the end of the year-ago period. The upside was primarily driven by internal and existing client growth, partially offset by new client growth.

Total System also reported 32.4% year-over-year hike in selling, general and administrative (SG&A) expenses, which stood at $88 million. Cost of services also increased 38.9% to $422.9 million. Alongside, non-operating expense stood at $0.3 million against an income of $1.0 million. Merger and acquisition expenses were pegged at $1.3 million, compared with $3.5 million in the year-ago period.

Subsequently, adjusted EBITDA jumped 21.2% year over year to $149.6 million. Operating income also rose 8.3% to $80.7 million in the reported quarter.

Financial Update

At the end of Mar 2014, operating cash flow escalated a whopping 183.8% year over year to $148.7 million. Free cash flow was pegged at $101.5 million, up $104.4 million from the year-ago period. Moreover, cash and cash equivalents rose to $274.2 million from $247.7 million at 2013-end.

Meanwhile, total assets rose to $3.72 billion from $3.69 billion at 2013-end, whereas total equity climbed to $1.63 billion from $1.60 billion at 2013-end. Long-term debt dipped slightly to $1.42 billion from $1.43 billion at 2013-end.


Capital Deployment Update

In Jan 2014, the board of Total System sanctioned a new share repurchase program worth 20 28 million shares through Apr 2015.

On Jul 1, 2014, Total System paid a regular quarterly dividend of $0.10 per share to the shareholders of record as on Jun 19.

On Apr 1, 2014, the company paid a regular quarterly dividend of $0.10 per share to the shareholders of record as on Mar 20.

Earlier in Oct 2011, Total System had hiked its regular quarterly dividend substantially by 42.9% to $0.10 from $0.07 per share paid previously.


Management tweaked the full-year 2014 revenue growth guidance to 17 20% at $2.42 2.47 billion from the prior estimated $2.49 2.54 billion. Before reimbursable items, revenues are now expected to grow by 20 22% at $2.18 2.23 billion, while adjusted EBITDA is estimated to escalate by 17 20% at $732 746 million, all slightly trimmed from prior estimates. Moreover, operating earnings per share is projected to grow in the band of 10 12% at $1.90 1.93 a share.

Business Update

On May 28, 2014, Total System announced an extension of its alliance with Europe s leading KBC Bank Ireland (KBC). This Irish bank is operational for over 40 years now, offering commercial and personal retail banking services to customers across Europe, Southeast Asia and the U.S.

Last year, Total System had allied with KBC to process its debit card portfolio, which was launched in 2013 and acknowledged as one of the best bank cards in the industry. Further, KBC introduced credit cards in Mar 2014, which will also be processed by Total System.

On May 27, 2014, Total System announced extended its partnership with Canadian Tire Financial Services to process its cards portfolio and offer other related value-added services.

On Apr 22, 2014, Total System s NetSpend allied with Western Union Co. to offer co-branded prepaid cards, which will be launched later in 2014.

Meanwhile, the company vended of operations in Japan during the reported quarter. Thus, it is now a discontinued operation.

On Mar 27, 2014, Total System announced long-term consumer credit card processing service alliance with UK s Virgin Money. The company is launching its own credit card business following the purchase of £1 billion in assets from MBNA.

On Mar 19, 2014, Total System announced alliance with Navy Federal Credit Union to offset credit and debit card services to latter s merchants. TSYS Merchant Solutions (TMS), a wholly owned affiliate of TSYS (NYSE: TSS), is ranked as the 7th largest merchant acquirer in the U.S. by number of active merchant outlets, according to The Nilson Report.

On Feb 27, 2014, Total System announced a multi-year agreement to process all the card portfolios of Missouri-based Commerce Bank.


On Feb 20, 2014, Total System amplified its stake in Central Payment Joint Venture (CPay) to 75%. In Aug 2012, the company had formed this joint venture with Central Payment Co. LLC by buying a 60% stake in this privately-held direct merchant acquirer for $66 million. Since then, the value of this holding has escalated to $250 million.

On Jan 16, 2014, Total System announced the launch of TSYS Authorization Controls to offer the consumers the authority to control the use of their debit and credit cards at any point of transaction and from any device or location.


Total System shares currently trade at 18.2x our 2014 earnings estimate, a 72% discount to the 64.7x industry average. On a price-to-book basis, the shares trade at 3.6x, a 50% discount to the 7.2x industry average. The valuation on a price-to-book basis appears stretched, given a trailing 12-month ROE of 18.8%, which is quite below the 33.3% industry average.

Our six-month target price of $38.00 equates to about 21.8x our earnings estimate for 2014. With an annual dividend supplement of $0.40 per common share, this target price implies a return of about 20.5% over that period. This is consistent with our Outperform recommendation on the shares.

The quantitative Zacks Rank for Total System is currently 2 , indicating slight upward pressure on the shares over the near term. Short interest is currently 2.7 days.

Key Indicators

P/E F1 P/E F2 Est. 5-Yr EPS Gr% P/CF (TTM) P/E (TTM) P/E 5-Yr High (TTM) P/E 5-Yr Low (TTM)

Total System Services Inc. (TSS) 18.2 15.7 10.0 11.7 19.3 21.4 12.2

Industry Average 64.7 29.0 14.7 19.7 32.7 44.3 17.8

S&P 500 16.9 15.8 10.7 15.0 18.1 27.7 12.0

Equifax Inc. (EFX) 19.1 17.2 8.9 14.0 20.2 20.0 10.9

Global Payments Inc. (GPN) 16.1 14.5 11.6 14.1 18.3 23.0 11.8

Heartland Payment Systems Inc. (HPY) 19.4 16.9 14.5 9.5 19.2 30.1 11.2

Vantiv Inc. (VNTV) 19.7 17.4 14.3 13.7 22.6 22.8 17.9

TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow

P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE (TTM) D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA (TTM) Total System Services Inc. (TSS) 3.6 3.9 2.1 18.8 0.9 1.3 12.6

Industry Average 7.2 7.2 7.2 33.3 1.4 0.7 19.8 S&P 500 4.7 9.8 3.2 23.1 NA 0.0 NA


Earnings Surprise and Estimate Revision History



The analysts contributing to this report do not hold any shares of TSS. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal

views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1095 companies covered: Outperform - 15.4%, Neutral - 79.1%, Underperform 5.0%. Data is as of midnight on the business day immediately prior to this publication.

Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively.

Research Analyst Meenakshi Sharma

Copy Editor Ananya Sarkar

Lead Analyst Meenakshi Sharma