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Here's Why You Should Retain Fidelity (FIS) Stock for Now

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Fidelity National Information Services, Inc. (FIS - Free Report) is well poised to grow on the back of strategic acquisitions and partnerships. Also, rising demand for digital payment solutions is a huge positive.

Fidelity — with a market cap of $60 billion — provides banking and payments technology solutions, processing services and information-based services to the financial services industry. Based in Jacksonville, FL, FIS offers financial institutions across the globe a broad array of buy and sell-side solutions.

Courtesy of solid prospects, this currently Zacks Rank #3 (Hold) stock is worth holding on to at the moment.

Trend in Estimates

The Zacks Consensus Estimate for Fidelity’s 2022 earnings is pegged at $7.30 per share, indicating an 11.5% rise from the prior-year reported figure. FIS beat on earnings in each of the last four quarters, the average being 2.3%.

Furthermore, the consensus mark for revenues is $14.8 billion for 2022, indicating a 6.9% rise from the year-ago period’s reading.

Key Drivers

The continuous rise in demand for digital infrastructure owing to the digital transformation of the global economy poises FIS for steady and long-term growth. Fidelity’s strategic investments in technology and innovation across high-growth markets will continue to increase its addressable market size. Its focus on improving technology gives FIS a competitive edge over its peers. This helps FIS win significant client deals.

Fidelity makes strategic acquisitions to grow its overall business. FIS strengthened its ambit of e-commerce offerings through buyouts like Payrix and others. FIS prioritizes expansion into high-growth verticals to capture the incremental total addressable market in under-penetrated markets. Its famous acquisition of Worldpay, post which, it became one of the global leaders in financial technology, boosted its top line, significantly.

FIS focuses on top-tier strategic partnerships and future-proof underlying technologies to grow its business. Fidelity’s growing footprint in the crypto market is praiseworthy. FIS partnered with cryptocurrency platforms like Crypto.com and OKCoin to support their respective global expansions. Further, its partnership with bitcoin-focused financial services and technology provider NYDIG is expected to boost traffic in its Digital One Mobile application.

Fidelity’s valuation seems inexpensive at the current level. Looking at its 12-month forward price-to-earnings multiple, investors might want to pay higher premium. FIS currently has a ratio of 12.4X, lower than the industry average of 21X.

Rising travel volumes are expected to benefit Fidelity’s Merchant Solutions segment revenues. With consumer spending expected to witness a rapid recovery and cross-border transactions likely to improve over the coming quarters, the Merchant Solutions business will gain heavily.

Key Concerns

There are a few factors that are impeding the stock’s growth lately.

Increasing costs are eating into its profits. Selling, general and administrative expenses saw a CAGR of 28.6% over the last five years. The growing costs due to a multi-year modernization of platforms and applications might keep its margins under pressure. Also, consolidation in the banking and financial services industry will continue to have a negative impact on FIS’ revenue growth by eliminating the existing clients, particularly in those cases, where the company is providing multiple services to the involved merchant entities. Nevertheless, we believe that a systematic and strategic plan of action bodes well for the long run.

Better-Ranked Players

Some better-ranked stocks in the broader business services space are International Money Express, Inc. (IMXI - Free Report) , Paysafe Limited (PSFE - Free Report) and EVERTEC, Inc. (EVTC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Miami, FL, International Money Express provides money remittance services. The Zacks Consensus Estimate for IMXI’s 2022 earnings indicates a 17.7% increase from the prior-year reported number.

Based in London, Paysafe is a digital commerce solution provider for different types of businesses. The Zacks Consensus Estimate for PSFE’s second-quarter earnings indicates a 175% increase from the prior-year reported number.

San Juan, Puerto Rico-based EVERTEC boasts a lucrative transaction processing business. The Zacks Consensus Estimate for EVERTEC’s 2022 bottom line has increased 2% in the past 60 days. EVTC’s earnings beat estimates in three of the last four quarters and met the mark once, the average surprise being 16.9%.