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Fidelity National Information Services Inc. (FIS - Analyst Report) is scheduled to release its fiscal second quarter 2012 results after the closing bell on July 17, 2012. Although the analysts have revised their estimates downward in recent times, we note that Fidelity has outperformed the Zacks Consensus Estimates by an average of 1.68% over the last 4 quarters. We expect this trend to continue in the current quarter.

Previous Quarter Highlights

In the first quarter, Fidelity’s top line was $1.45 billion that whisked past the Zacks Consensus Estimate of $1.44 billion, while the bottom line of 51 cents matched the Zacks Consensus Estimate. The top line was driven by strong organic growth coupled with strong results from the Financial Solutions and International Solutions segments.

Fidelity’s margins expanded based on higher revenue base and prudent business mix. The company’s operational efficiencies drove the bottom line higher on a year-over-year basis.

For further details, please read: Fidelity’s EPS In Line, Rev Beat

Estimate Revision Trend

In the last 30 days, out of the three analysts covering the stock, two analysts revised their estimates downward and only one upward revision was noticed. Thus, the Zacks Consensus for the second quarter 2012 dropped by a penny in the aforementioned period to 58 cents.  For the second quarter, the revenue estimate as per Zacks Consensus is $1.48 billion.

Analysts covering the stock are cautious on Fidelity due to the weak macro-economic environment and sluggishness in the Payment Solutions Group. However, the divesture of the health care business is looked upon as a positive move that would enable the company to focus in the core Financial Solutions Group. Moreover, an uptrend in the organic growth also bodes well with the company’s long-term prospect.   

Recommendation

We believe that Fidelity’s commanding position in the financial services market, increasing international exposure, recurring revenue model, diversified product portfolio, cost synergies from acquisitions and loyal customer base will drive growth over the long term. We also believe that Fidelity’s expansion into emerging markets such as Brazil and Europe will drive organic revenue growth going forward.

However, increasing consolidation in the banking sector, a challenging environment for the Payments Solutions business and an uncertain regulatory environment are the primary headwinds, in our view.

We maintain our Neutral recommendation on a long-term basis (for the next 6 to 12 months), primarily due to a highly leveraged balance sheet and intense competition from other major players such as Fiserv Inc. (FISV - Analyst Report).

Currently, Fidelity has a Zacks #3 Rank, which implies a short-term Hold rating (for the next 1-3 months).

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