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Why Is Fidelity National (FIS) Up 6.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Fidelity National Information Services (FIS - Free Report) . Shares have added about 6.3% in that time frame, underperforming 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 Q2 Earnings Beat Estimates, Expenses Increase

Fidelity’s second-quarter 2020 adjusted earnings per share from continuing operations were $1.15, surpassing the Zacks Consensus Estimate of $1.10. The bottom line, however, compared unfavorably with the year-ago quarter figure of $1.30.

Expansion of margins was a key tailwind. However, a rise in expenses posed a concern. Also, lower organic revenues were a headwind.

On a GAAP basis, the company reported net earnings attributable to common stockholders of $19 million or 3 cents per share compared with $154 million or 47 cents per share in the prior-year quarter.

Organic Revenues Decline, Expenses Flare Up

GAAP revenues in the quarter were $2.96 billion, up 40% year over year. The upside mainly stemmed from the acquisition of Worldpay. Also, the figure surpassed the Zacks Consensus Estimate of $2.89m million.

Organic revenues declined nearly 7% in the quarter primarily due to reduced consumer spending trends caused by shelter-in-place, lockdown orders and other impacts of the COVID-19 pandemic.

Selling, general and administrative expenses were $870 million, up significantly from $317 million in the year-ago quarter.

Segment wise, Merchant Solutions’ GAAP revenues grew to $812 million from $97 million in the year-ago quarter. Revenues from Banking Solutions rose 9% to $1.48 million. Capital Market Solutions’ revenues rose 6% to $629 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased to $1.16 billion from $794 million in the year-ago quarter. Adjusted EBITDA margin expanded 150 basis points to 39.1%.

Balance Sheet & Cash Flow

As of Jun 30, 2020, cash and cash equivalents were $1.18 billion compared with $1.15 billion as of Dec 31, 2019. Debt outstanding was $19.9 billion.

In the second quarter, net cash provided by operations was $1.23 billion and free cash flow increased 58.6% from the prior-year quarter to $655 million.

The company paid out dividends worth $217 million in the reported quarter.

Outlook

Management expects EBITDA margin to expand in the third and fourth quarters of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Fidelity National has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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

Estimates have been broadly trending downward 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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