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Fidelity National (FIS) Up 0.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Fidelity National Information Services (FIS). Shares have added about 0.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fidelity National due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Fidelity Tops Q2 Earnings & Revenues Estimates, Ups View

Fidelity’s second-quarter 2021 adjusted net earnings per share were $1.61, surpassing the Zacks Consensus Estimate of $1.55. Also, the bottom line compared favorably with the year-ago quarter figure of $1.15.

Notable increase in margin and organic revenue growth were positives. Given the robust activity in terms of new sales and an expanding backlog of revenue under contract in the June-end quarter, the company improved its guidance for 2021. However, flaring expenses posed a major concern.

On a GAAP basis, the company reported net earnings attributable to common stockholders of $341 million or 55 cents per share compared with $19 million or 3 cents per share in the prior-year quarter.

Organic Revenues Rise, Expenses Increase

Revenues in the quarter were $3.48 billion, up 17% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $3.39 billion. Organic revenues increased 16% in the quarter on higher growth across all three operating segments.

Segment-wise, Merchant Solutions’ revenues climbed 45% to $1.18 billion. Revenues from Banking Solutions rose 8% to $1.58 million. Capital Market Solutions’ revenues jumped 6% to $630 million.

Selling, general and administrative expenses were $977 million, up 16.3% year over year.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased to $1.52 billion from $1.15 billion in the year-ago quarter. Adjusted EBITDA margin expanded 460 basis points to 43.7%.

Balance Sheet & Cash Flow

As of Jun 30, 2021, cash and cash equivalents were $1.30 billion compared with $1.96 billion as of Dec 31, 2020. Debt outstanding was $19.4 billion.

In the second quarter, net cash provided by operations was $1 billion. The company reported a free cash flow of $1 billion.

It paid out dividends worth $242 million in the reported quarter and repurchased 2.7 million shares for $400 million.

Guidance

Third Quarter

Fidelity expects GAAP revenues between $3.49 billion and $3.52 billion, with organic revenues growth of 9-10%. The company expects to report earnings per share between 40 cents and 50 cents. Adjusted earnings per share are expected to be $1.66-$1.69, suggesting year-over-year growth of 17-19%.

Management expects adjusted EBITDA margin to expand 190-220 basis points (bps) to 44-45%. Adjusted EBITDA is expected to be $1.55-$1.58 billion, indicating year-over-year growth of 14-16%.

Full Year

For 2021, GAAP revenues are projected to be between $13.9 billion and $14 billion. Organic revenues are expected to increase 10-11%. The company increased its revenue synergy target for 2021 by $100 million to $700 million.

The company expects to report earnings per share of $1.20-$1.45. Adjusted earnings per share are expected to be $6.45-$6.60, indicating year-over-year growth of 18-21%.

It expects to report adjusted EBITDA of $6.13-$6.2 billion. Adjusted EBITDA margin is expected to expand 220-240 bps to 44-45% in 2021.

The Merchant solutions unit is expected to witness mid to high-teens organic revenue growth as compared with the 2019 period on a pro-forma basis, supported by continued recovery in international revenues and discretionary verticals like travel and airlines.

Effective tax rate is estimated to be 14.5% is. The company expects to exit 2021 with leverage below 3X, while continuing to assess mergers and acquisition opportunities.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Fidelity National has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Fidelity National has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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