Can Rising Costs Hurt Fidelity National's (FIS) Q3 Earnings?
Fidelity National Information Services, Inc. FIS is set to report its third-quarter 2023 results on Nov 7, before the opening bell.
What Do the Estimates Say?
The Zacks Consensus Estimate for third-quarter earnings per share (EPS) of $1.52 suggests a 12.6% decrease from the prior-year figure of $1.74. The consensus mark remained stable over the past week. The consensus estimate for third-quarter revenues of $3.7 billion indicates a 1.4% increase from the year-ago reported figure.
Fidelity National beat the consensus estimate for earnings in three of the trailing four quarters and missed once, with the average surprise being 3.1%. This is depicted in the graph below:
Fidelity National Information Services, Inc. Price and EPS Surprise
Fidelity National Information Services, Inc. price-eps-surprise | Fidelity National Information Services, Inc. Quote
Before we get into what to expect for the to-be-reported quarter in detail, it’s worth taking a look at FIS’ previous-quarter performance first.
Q2 Earnings Rewind
The banking and payments technology solutions provider reported adjusted EPS of $1.55 for the previous quarter, beating the Zacks Consensus Estimate by 4.7% due to well-performing Banking and Capital Markets businesses, recurring revenue growth and lower costs. Its Future Forward enterprise transaction program reaped results in the form of cash savings.
Now, let’s see how things have shaped up before the third-quarter earnings announcement.
Q3 Factors to Note
Fidelity National's third-quarter performance is expected to ride the global digital transformation wave. Its strategic investments in mobile banking and expanded product offerings align with evolving consumer preferences, enhancing financial results.
The company’s investments in technology and innovation across high-growth markets are anticipated to have helped expand its total addressable market in the third quarter. However, expenses are likely to have risen due to the investments.
The Zacks Consensus Estimate for revenues from the Banking Solutions segment predicts 1.4% year-over-year growth, whereas our model estimate predicts a 1% increase. The consensus mark for the unit’s adjusted EBITDA signals a 3.4% increase from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for revenues from the Capital Market Solutions segment predicts more than 9% year-over-year growth, while our estimate indicates a 7.4% rise. The consensus mark for the unit’s adjusted EBITDA signals a 6.9% increase from the year-ago figure, whereas we expect it to increase 6.2%.
In the third quarter, cross-border travel is likely to have witnessed a continued increase. This is expected to have boosted the demand for FIS’ e-commerce payment gateway and the new payment platform. Both the Zacks Consensus Estimate and our model estimate for Merchant Solutions revenues predict a marginal year-over-year increase. Nevertheless, escalating costs pose a potential challenge to this upside.
The company is expected to have witnessed increased expenses due to higher cost of revenues, selling, general and administrative costs, improvements of platforms and applications, as well as some inflationary pressures. This is likely to have reduced the profit levels in the to-be-reported quarter, making an earnings beat uncertain.
Our estimate for selling general and administrative costs predicts 1.6% year-over-year growth. We expect the cost of revenues to have increased 1.9% from a year ago to around $1 billion in the third quarter.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Fidelity National this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of -10.33%. This is because the Most Accurate Estimate currently stands at $1.37 per share, lower than the Zacks Consensus Estimate of $1.52.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Fidelity National currently carries a Zacks Rank #2.
Stocks to Consider
While an earnings beat looks uncertain for Fidelity National, here are some companies from the broader Business Services space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
Alithya Group Inc. ALYA has an Earnings ESP of +100.00% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Alithya’s bottom line for the to-be-reported quarter has remained stable over the past week. It beat earnings estimates thrice in the past four quarters and missed once, with an average surprise of 150%. The consensus mark for ALYA’s top line is pegged at $95.7 million for the to-be-reported quarter.
Duolingo, Inc. DUOL has an Earnings ESP of +35.90% and is a Zacks #3 Ranked player.
The Zacks Consensus Estimate for Duolingo’s bottom line for the to-be-reported quarter indicates an 82.6% year-over-year improvement. The estimate remained stable over the past week. Furthermore, the consensus mark for DUOL’s revenues is pegged at $131.4 million, suggesting 36.8% growth from a year ago.
PagSeguro Digital Ltd. PAGS has an Earnings ESP of +1.96% and a Zacks Rank of 3.
The Zacks Consensus Estimate for PagSeguro’s bottom line for the to-be-reported quarter is pegged at 26 cents per share, which suggests an 8.3% year-over-year jump. The estimate remained stable over the past week. PAGS beat earnings estimates in all the past four quarters, with an average of 9.3%.
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Fidelity National Information Services, Inc. (FIS) : Free Stock Analysis Report
PagSeguro Digital Ltd. (PAGS) : Free Stock Analysis Report
Alithya Group Inc. (ALYA) : Free Stock Analysis Report
Duolingo, Inc. (DUOL) : Free Stock Analysis Report
