Back to top

Image: Bigstock

What's in Store for Fidelity National's (FIS) Q3 Earnings?

Read MoreHide Full Article

Fidelity National Information Services (FIS - Free Report) is scheduled to release third-quarter 2021 earnings on Nov 4, before the bell. The company’s revenues and earnings are anticipated to reflect year-over-year growth.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Notable increases in margin and organic revenue growth were positives. However, rising expenses posed a major concern.

Notably, Fidelity delivered earnings surprises in three of the trailing four quarters, while meeting in the other, the average beat being 2.93%.

Prior to the third-quarter earnings release, the company is witnessing downward estimate revision, reflecting analysts’ bearish sentiments. The Zacks Consensus Estimate for the third-quarter earnings has been revised marginally downward to $1.68 over the past month. Nonetheless, the figure suggests year-over-year growth of 18.31%.

The Zacks Consensus Estimate for revenues of $3.52 billion indicates a year-over-year jump of 10.15%. Fidelity expects GAAP revenues for the to-be reported quarter to be between $3.49 billion and $3.52 billion, with organic revenue growth of 9-10%.

Factors at Play

Fidelity is well positioned to benefit from the digital transformation of the global economy as well as the increasing investments in mobile banking and innovative products, and in financial infrastructure. The company’s several payment solution platforms, including Modern Banking Platform, RealNet and Payments One, have been winning new clients, and are likely to have supported its Banking Solutions unit. The Zacks Consensus Estimate for third-quarter revenues from this unit is $1.62 billion, suggesting a 7% rise from the prior-year quarter.

Although the Delta variant is expected to have impacted travel trends during the third quarter, cross-border travel is likely to have rebounded comparatively, following the relaxation of the pandemic-induced restrictions in several countries. Demand for the company’s e-commerce payment gateway and new payments platform is anticipated to have shot up. This, along with several other products and services that Fidelity offers to merchants internationally, is expected to have boosted revenue growth. The consensus mark for Merchant Solutions unit’s revenues is $1.19 billion, suggesting a jump of 16.6% year over year.

Earlier in October, Microsoft fortified its global payments relationship with Worldpay (acquired by Fidelity in July 2019). Worldpay will offer online credit and debit card processing for Microsoft online store fronts, including, Xbox, Microsoft Advertising, Microsoft Azure and other Microsoft brands in the Asia Pacific, Americas and Europe.

In July, Worldpay also partnered with cryptocurrency platform, OKCoin, to provide global merchant acquiring and foreign-exchange services to support the latter’s continued global expansion. In May, Fidelity partnered with NYDIG 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. Given the growing demand in the payments market for convenient payment options, such tie-ups are expected to provide a significant growth opportunity over the long term. Also, revenue synergies from the Worldpay deal continue to aid financials.

However, the company’s focus on rolling out innovative products in order to meet customers’ rising demand might have inflated expenses.

As a result of high contribution margins in the business, management expects adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin to expand 190-220 basis points to 44-45%. The adjusted EBITDA is expected to be $1.55-$1.58 billion, indicating year-over-year growth of 14-16%.

What the Zacks Model Predicts

Our quantitative model predicts an earnings beat for Fidelity this time around. The combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — increases the odds of an earnings beat. This is just the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Fidelity +0.02%.

Zacks Rank: Fidelity currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks That Warrant a Look

Here are some finance stocks 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.

Apple Hospitality REIT (APLE - Free Report) , slated to release third-quarter earnings on Nov 4, has an Earnings ESP of +26.67% and sports a Zacks Rank of 1, at present.

CubeSmart (CUBE - Free Report) , set to report quarterly numbers on Nov 4, has an Earnings ESP of +2.86% and holds a Zacks Rank of 2, at present.

Main Street Capital Corporation (MAIN - Free Report) is also scheduled to release earnings on Nov 4. The company, which carries a Zacks Rank #2 at present, has an Earnings ESP of +1.59%.