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Fidelity (FIS) Witnessing Inorganic Growth Amid Cost Woes

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On Jun 14, we issued an updated report on Fidelity National Information Services (FIS - Free Report) . 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, consolidation in the banking sector, stiff competition from new entrants 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 marginally north.

Shares of this Zacks Rank #3 (Hold) company have gained 2.8% in the past six months compared with the industry’s growth of 5.7%.

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The company’s revenue growth story is impressive as it witnessed a CAGR of 9.2% in the last five years (ended 2020) on 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. Recently, the firm partnered with a 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, accommodating a seamless user-friendly interface. Such moves in the budding digital platform are encouraging.

Nevertheless, 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. Apart from this, 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 - Free Report) and EVERTEC, Inc. (EVTC - Free Report) , carrying a Zacks Rank #2 (Buy), and Webster Financial Corporation (WBS - Free Report) flaunting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 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 19.7% in the past six months.

EVERTEC’s earnings estimate for the current year moved north in the past 60 days. Further, the company’s shares have rallied 5.1% in six months’ time.

Webster’s consensus estimate for the ongoing-year earnings has been revised upward in the past 60 days. Moreover, its shares have gained 24.1% over the past six months.

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