Fiserv stock experienced a 21% decline on Wednesday after the company reported a second quarter that failed to meet expectations. The stock dropped from a previous close near $166 to as low as $128 during morning trading.
Although markets progressed due to a trade deal with Japan, European tariffs loom if the U.S. enacts unilateral tariffs. Other earnings sell-offs included Texas Instruments at 12% and Enphase Energy at 8%, with anticipation of further Q2 results from Tesla and Alphabet.
Fiserv’s Q2 organic revenue grew 8% YoY to $5.18 billion, falling short of the $5.2 billion expected, leading management to lower full-year forecasts. Despite a 5 cent increase in EPS guidance, the market largely disregarded this.
Fiserv reported $2.47 in adjusted EPS on $5.52 billion in revenue, surpassing Wall Street predictions. Despite satisfactory Q2 results, Fiserv shares returned to February 2024 levels, with technical indicators such as the Relative Strength Index suggesting potential opportunities.
The candlestick pattern resembles a hammer, hinting at possible buying interest as shares recover from early session lows. If trading opens above the previous day’s high, it might indicate the initiation of an uptrend.
The significant stock decline has caused a dramatic spike in implied volatility, which is a key measure of expected price swings. We are seeing 30-day implied volatility for the company jump to over 45%, far exceeding its 52-week average of around 25%. This environment makes selling options premium an attractive strategy for those who believe the stock will now stabilize.
Given the technical candlestick pattern and oversold RSI indicator, we are looking at selling out-of-the-money puts for the coming weeks. This strategy allows us to collect the rich premium caused by the volatility spike while setting a price below the recent low at which we would be comfortable owning the shares. Historical data on similar post-earnings drops of over 15% for the stock shows a tendency for it to find a base and trade sideways or slightly higher in the following month.
For traders anticipating a faster rebound toward the February levels, the high volatility makes buying calls outright very expensive. A more prudent strategy would be a bull call spread, which reduces the upfront cost by selling a higher-strike call against the one being purchased. This approach limits the maximum profit but provides a better risk-reward profile if the stock begins the uptrend suggested by the technicals.
We must also respect the fundamental reason for the drop, as the lowered full-year forecast could keep a lid on any significant rally. The looming threat of European tariffs mentioned in the market summary adds another layer of macro risk that could impact investor sentiment. Therefore, a defined-risk strategy is essential, as a failure to open above the previous high could invalidate the bullish technical signals.
