Fidelity National (FIS) Up 3.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Fidelity National Information Services (FIS). Shares have added about 3.7% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Fidelity National Q3 Earnings Beat Estimates, Costs Up

Fidelity’s third-quarter 2019 adjusted earnings per share from continuing operations came in at $1.43 that surpassed the Zacks Consensus Estimate of $1.35. The bottom line compares favorably the year-ago quarter figure of $1.33.

Organic revenue growth and expanding margin were the key tailwinds. Also, strong liquidity position was a positive factor. However, significant rise in expenses posed a key concern.

On a GAAP basis, the company reported net earnings attributable to common stockholders of $154 million or 29 cents compared with $154 million or 47 cents in the prior-year quarter.

Organic Revenues Increase, Expenses Up

GAAP revenues for the quarter came in at $2.82 billion, up 35% year over year. The figure topped the consensus estimate of $2.8 billion.

Organic revenues went up nearly 5% in the quarter.

Selling, general and administrative expenses were $757 million, up significantly year over year.

Segment wise, Merchant Solutions’ GAAP revenues grew considerably to $720 million, and revenues from Banking Solutions rose 4% to $1.49 million. Capital Market Solutions’ revenues climbed 4% to $611 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased to $1.19 billion from $808 million in year-ago quarter. Adjusted EBITDA margin expanded 350 basis points to 42.2%.

Balance Sheet & Cash Flow

As of Sep 30, 2019, cash and cash equivalents were $1.31 billion compared with $703 million as of Dec 31, 2018. Debt outstanding was nearly $20.2 billion.

In the third quarter, net cash provided by operations was $921 million and free cash flow nearly doubled from the prior-year quarter to $640 million.

Fidelity paid dividends worth $215 million in the reported quarter.

Guidance

Fourth-Quarter 2019

The company raised fourth-quarter guidance primarily reflecting current business trends and ongoing synergy achievement.

Fidelity expects GAAP revenues to be between $3.3 billion and $3.34 billion.

Adjusted earnings per share (EPS) are expected to be in the band of $1.50-$1.55. Adjusted EBITDA is expected in the range of $1.48 billion to $1.51 billion.

GAAP net earnings are likely to be $125-$280 million, and EPS are projected to be 20 cents to 45 cents.

Full-Year 2019

Fidelity expects both non-GAAP and GAAP revenues between $10.29 billion and $10.33 billion.

Adjusted EPS are expected in the band of $5.47-$5.56. Adjusted EBITDA is expected in the range of $4.19-$4.22 billion.

GAAP net earnings are likely to be within $602-$772 million, while EPS is projected in the $1.33-$1.70 band.

Effective tax rate is expected to be about 17%.

Mid-Term Outlook

The company expects to realize revenue synergies of $150 million from the WorldPay acquisition in 2020. Also, it raised expense synergies target by $50 million to $350 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward 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. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward 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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