DST Systems (DST) Stock Up 34% This Year So Far: Here's Why

DST Systems Inc. (NYSE:DST) has gained 34% in the year-to-date period, substantially outperforming the 6.5% rally of the industry it belongs to.

This upside is primarily attributable to the company’s announcement of being acquired by SS&C Technologies Holdings (NASDAQ:SSNC) last month. Although some shareholders rights law firms are still investigating the best price of the deal, we believe the transaction will result in enhancement of DST Systems’ overall shareholders’ wealth.

This is because for the past year, the company has been struggling with sustained decline in registered accounts and escalating operating expenses, which put its fundamentals under pressure.

Notably, the company’s last few quarterly results were affected by client migrations, reduction in membership and decline in healthcare technology spending resulting from changes in government policies.

Moreover, total cost and operating expenses increased 62% from the year-ago quarter to a hefty $481 million. This, in turn, put pressure on the company’s margin. Operating margin contracted 590 basis points on a year-over-year basis to 13% in the quarter.

The combination of its businesses with that of SS&C will be in best interest of shareholders as the transaction will enhance the combined companies’ capabilities, market share and generate cost synergies, thereby boosting revenues as well as earnings.

Furthermore, we expect steady contributions from acquisitions to support revenue growth. Notably, last year, DST Systems acquired State Street's ownership interest in both Boston Financial Data Services, Inc. ("BFDS") and International Financial Data Services Limited (IFDS U.K.), which helped it to register 48.9% year-over-year revenue growth in fourth-quarter 2017.

DST Systems sports a Zacks Rank #1 (Strong Buy).

Other Stocks to Consider

Other top-ranked stocks in the broader technology sector include Paycom Software (NYSE:PAYC) and NVIDIA Corporation (NASDAQ:NVDA) . Both the stocks sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Paycom and NVIDIA have a long-term expected EPS growth rate of 25.8% and 10.3%, respectively.

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