recent Forbes "StreetWalker" piece (4/20/98)
forbes.com
Ready, set, pop
BANK STOCKS are hot, but Columbus, Ga.-based Synovus Financial Corp. (NYSE: SNV) is incendiary. Since November, when the $1.2 billion (1997 sales) company snagged a spot in the S&P 500, shares have risen 38%. At a recent $37, they trade at an amazing 40 times earnings and more than 7 times book value.
Synovus owns 34 regional banks in the South and 81% of credit card processor Total System Services (NYSE: TSS). TSS, accounting for 40% of Synovus' revenues, is fueling this highflier. Its P/E is 84, even though growth has averaged 23% in each of the past five years.
That won't last. Bank card processors are facing higher costs from year-2000 logistical problems. As the rate of new cards issued slows, competition will become fierce industrywide.
TSS' AT&T Universal Card Services account-14.4% of sales-is up for renewal in two years. First Data Corp., TSS' main rival, could underbid the company, causing margin woes even if TSS keeps the account.
We'd say short TSS, but shares aren't borrowable. If they traded in line with industry leader First Data-which earns double what TSS does-they'd fetch $15.20, some 50% less.
Synovus' shares are borrowable. The stock trades at a 60% premium to the P/E of its peers and nearly twice their book value. A more rational valuation of the two companies would shave $14 off Synovus shares. That would mean a $23 stock, a 38% drop. Short it.
-CARLEEN HAWN
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