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Fidelity National (FIS) Down 15.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Fidelity National Information Services (FIS). Shares have lost about 15.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fidelity National due for a breakout? 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 drivers.

Fidelity National Q4 Earnings Beat, Revenues Increase

Fidelity’s fourth-quarter 2019 adjusted earnings per share from continuing operations came in at $1.57, surpassing the Zacks Consensus Estimate of $1.54. However, the bottom line compared unfavorably with the year-ago quarter figure of $1.60.

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 loss attributable to common stockholders of $158 million or 26 cents against net earnings $299 million or 91 cents in the prior-year quarter.

In 2019, adjusted net earnings attributable to common stockholders came in at $2.5 billion or $5.61 per share compared with $1.7 billion or $5.23 per share in the prior year. The Zacks Consensus Estimate was pegged at $5.51.

Organic Revenues Increase, Expenses Up

GAAP revenues in the quarter came in at $3.34 billion, up 54% year over year. The figure topped the consensus estimate of $3.33 billion.

In 2019, the company reported GAAP revenues of $10.3 billion, up 23% year over year. Also, it matched with the Zacks Consensus Estimate.

Organic revenues went up nearly 7% in the quarter.

Selling, general and administrative expenses were $1.23 billion, up significantly year over year.

Segment wise, Merchant Solutions’ GAAP revenues grew to $1.12 billion, and revenues from Banking Solutions rose 6% to $1.56 million. Capital Market Solutions’ revenues climbed 8% to $669 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased to $1.49 billion from $864 million in year-ago quarter. Adjusted EBITDA margin expanded 470 basis points to 44.6%.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash and cash equivalents were $1.15 billion compared with $703 million as of Dec 31, 2018. Debt outstanding was nearly $20.2 billion.

In the fourth quarter, net cash provided by operations was $670 million and free cash flow nearly doubled from the prior-year quarter to $812 million.

Fidelity paid dividends worth $215 million in the reported quarter. In 2019, the company paid dividends worth $656 million.

Guidance

First-Quarter 2020

Fidelity expects GAAP revenues to be between $3.18 billion and $3.21 billion.

Adjusted earnings per share (EPS) are expected to be in the band of $1.30-$1.34. Adjusted EBITDA is expected in the range of $1.48 billion to $1.51 billion.

The company expects to report between net loss of 15 cents per share and breakeven on GAAP basis.

Effective tax rate is expected to be about 16%.

Full-Year 2020

Fidelity expects both non-GAAP and GAAP revenues between $13.6 billion and $13.7 billion.

Adjusted EPS is expected in the band of $6.17-$6.35. Adjusted EBITDA is expected to increase 44% in 2020.

GAAP EPS is projected to be between 50 cents and $1.30.

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.

Effective tax rate is expected to be about 16%.

Segments Outlook

Merchant Solutions is expected to grow in the low-double digits as underlying business trends remain robust, and the company expects revenue synergies to rise throughout the year.

Banking Solutions is anticipated to continue to generate mid-single digit growth in 2020,

For 2020, the company expects Capital Markets Solutions to show modest acceleration compared with 2019 as it continues to boost recurring revenues.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months.

VGM Scores

At this time, Fidelity National has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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