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Fidelity's (FIS) Inorganic Growth Moves Aid Amid Cost Woes

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On May 11, we issued an updated report on Fidelity National Information Services FIS. The company is benefiting from solid organic growth and continues to undertake initiatives in a bid to boost digital platforms like mobile banking. However, the firm continues to witness rising costs. Also, unsustainable capital-deployment activities and high debt level are concerns.

The company has been witnessing upward estimate revisions, reflecting analysts’ optimism about its growth prospects. Over the past 30 days, the Zacks Consensus Estimate for 2021 earnings moved 1.3% north.

Shares of this Zacks Rank #3 (Hold) company have gained 2.3% in the past six months compared with the industry’s growth of 9.2%.

The company’s revenue growth story is impressive as it witnessed a CAGR of 9.2% in the last five years (ended 2020) on its solid market position, attractive core business, and a broad and diverse customer base. The rising trend which continued in the first three months of 2021 is anticipated to sustain on high recurring revenues from processing and maintenance, and several ongoing initiatives, including digital strategy.

Also, the company’s investments in mobile banking and innovative products, such as PayNet, BuyWay and FIS’ Digital One Mobile application, will likely open up significant growth opportunities for the long term.

Moreover, Fidelity’s inorganic growth strategies look impressive. In July 2019, it acquired Worldpay, which will likely drive further revenue growth. In addition, recently, the firm partnered with bitcoin-focused financial services and technology provider NYDIG, in a bid to enable banks to offer customers the ability to buy, sell and hold bitcoin via the FIS’ Digital One Mobile application, enabling a user-friendly interface connecting consumers seamlessly in-app with bitcoin trading. Such moves in the rising digital platform are encouraging.

However, elevated expenses due to integration-related costs and investment in technology have hindered Fidelity’s bottom-line growth to some extent. The company witnessed a CAGR of 19.8% in the last five years (ended 2020), with the trend continuing in the first quarter of 2021.

Further, consolidation in the banking sector and stiff competition from new entrants are key headwinds. Also, unsustainable capital-deployment activities due to volatile quarterly performance and high debt level are other concerns.

Stocks to Consider

Some better-ranked stocks in the same space are Equifax Inc. EFX, EVERTEC, Inc. EVTC and Usio, Inc. USIO. All of these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.

Equifax’s Zacks Consensus Estimate for 2021 earnings witnessed upward estimate revision over the past 30 days. Also, its share price has appreciated 44.5% in the past six months.

EVERTEC’s earnings estimate for the current year moved north in the past 30 days. Further, the company’s shares have rallied 22.8% in six months’ time.

Usio’s consensus estimate for ongoing-year earnings has been revised upward in the past 60 days. Moreover, its shares have surged 248.1% over the past six months.

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Fidelity National Information Services, Inc. (FIS) : Free Stock Analysis Report

Equifax, Inc. (EFX) : Free Stock Analysis Report

Evertec, Inc. (EVTC) : Free Stock Analysis Report

Usio Inc (USIO) : Free Stock Analysis Report

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