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Why Is Fidelity National (FIS) Down 2.5% 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 lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Fidelity National due for a breakout? 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 catalysts.
Fidelity National Q2 Earnings Beat, '23 View Raised
Fidelity National reported second-quarter 2023 adjusted earnings per share of $1.55, which outpaced the Zacks Consensus Estimate by 4.7%. However, the bottom line declined 10% year over year.
Revenues inched up 1% year over year to $3,746 million. The top line beat the consensus mark by 1.2%. The organic revenue growth came in at 2% in the quarter under review.
The better-than-expected quarterly results benefited from well-performing Banking and Capital Markets businesses. FIS’ Future Forward enterprise transaction program reaped results in the form of cash savings this quarter. Recurring revenue growth and lower costs aided the second-quarter results. The company also reported a $6.8 billion charge regarding the upcoming separation of the Worldpay Merchant Solutions business.
Q2 Performance
The cost of revenues of $2,188 million slipped 2.1% year over year, below our model estimate of $2,215.6 million. Selling, general and administrative expenses also declined 4.5% year over year to $1,033 million in the second quarter and remained below our estimate of $1,070.2 million.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of Fidelity National fell 3% year over year to $1,551 million but beat our estimate of $1,510.1 million. The adjusted EBITDA margin of 41.4% deteriorated 160 basis points (bps) year over year.
Inside FIS’ Segments
Revenues from Banking Solutions improved 1% year over year to $1,702 million in the second quarter, beating our estimate of $1,680.3 million. It was supported by increased recurring revenues from processing volumes, as well as professional services. The organic revenue growth was 2%. Adjusted EBITDA margin of 42.5% deteriorated 200 bps year over year due to the lower-margin revenue mix.
Merchant Solutions’ revenues were $1,312 million, which climbed 1% year over year and beat our estimate of $1,290.9 million thanks to higher volumes and eCommerce strength. The organic revenue growth came in at 1%. Adjusted EBITDA margin improved 120 bps year over year to 48.3% due to cost efficiencies.
Revenues from Capital Market Solutions increased 6% year over year to $672 million in the quarter under review and beat our estimate of $655.9 million, on the back of recurring revenue growth. The organic revenue growth was reported at 7%. Adjusted EBITDA margin of 50.2% improved 100 bps year over year on the back of solid contribution margins from growing revenues.
The Corporate and Other segment’s revenues of $60 million plunged 43% year over year but beat our estimate of $50.1 million.
Balance Sheet & Cash Flow
Fidelity National exited the second quarter with cash and cash equivalents of $1,982 million, which fell from $2,188 million at 2022-end. Total assets of $53,574 million decreased from $63,278 million at 2022-end.
Long-term debt, excluding the current portion, came in at $13,589 million at the second-quarter end. The figure decreased from $14,207 million as of Dec 31, 2022. The current portion of long-term debt was $785 million while short-term borrowings were $5,144 million.
Total equity of $20,273 million declined from the 2022-end level of $27,226 million.
In the second quarter of 2023, net cash provided by operations of $1,087 million rose from the $1,024 million figure in the prior-year quarter. FIS generated a free cash flow of $953 million in the second quarter, which jumped from $806 million a year ago.
Capital Deployment
Fidelity National rewarded $309 million to its shareholders via dividends in the quarter under review.
Divestiture of Merchant Solutions Business Announced
FIS agreed to divest a 55% stake in its Worldpay Merchant Solutions business in July, to private equity funds managed by GTCR. The deal is likely to close by the first quarter of next year, following which, it will report ownership interest in Worldpay as income from minority interest. Operating results from the unit will be presented as discontinued operations from the third quarter of 2023.
Update on Enterprise Transformation Program
FIS achieved annualized Future Forward cash savings of more than $315 million as of Jun 30, 2023. The company revised its guidance for cash savings of $1 billion by 2024-end.
3Q23 View
Revenues are expected to remain between $3,640 million and $3,690 million, while adjusted EBITDA is estimated to be in the $1,580-$1,625 millionband.
2023 Guidance
Management revised the guidance for net revenues upward, which is expected to be between $14,500 million and $14,631 million compared with the 2022 reported figure of $14,528 million.
Adjusted EBITDA is forecasted within $6,025-$6,146 million for 2023, with the margin expected in the range of 41.6-42%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Fidelity National has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Fidelity National has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Fidelity National is part of the Zacks Financial Transaction Services industry. Over the past month, Equifax (EFX - Free Report) , a stock from the same industry, has gained 4.9%. The company reported its results for the quarter ended June 2023 more than a month ago.
Equifax reported revenues of $1.32 billion in the last reported quarter, representing a year-over-year change of +0.1%. EPS of $1.71 for the same period compares with $2.09 a year ago.
Equifax is expected to post earnings of $1.78 per share for the current quarter, representing a year-over-year change of +2.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.
Equifax has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Why Is Fidelity National (FIS) Down 2.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Fidelity National Information Services (FIS - Free Report) . Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Fidelity National due for a breakout? 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 catalysts.
Fidelity National Q2 Earnings Beat, '23 View Raised
Fidelity National reported second-quarter 2023 adjusted earnings per share of $1.55, which outpaced the Zacks Consensus Estimate by 4.7%. However, the bottom line declined 10% year over year.
Revenues inched up 1% year over year to $3,746 million. The top line beat the consensus mark by 1.2%. The organic revenue growth came in at 2% in the quarter under review.
The better-than-expected quarterly results benefited from well-performing Banking and Capital Markets businesses. FIS’ Future Forward enterprise transaction program reaped results in the form of cash savings this quarter. Recurring revenue growth and lower costs aided the second-quarter results. The company also reported a $6.8 billion charge regarding the upcoming separation of the Worldpay Merchant Solutions business.
Q2 Performance
The cost of revenues of $2,188 million slipped 2.1% year over year, below our model estimate of $2,215.6 million. Selling, general and administrative expenses also declined 4.5% year over year to $1,033 million in the second quarter and remained below our estimate of $1,070.2 million.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of Fidelity National fell 3% year over year to $1,551 million but beat our estimate of $1,510.1 million. The adjusted EBITDA margin of 41.4% deteriorated 160 basis points (bps) year over year.
Inside FIS’ Segments
Revenues from Banking Solutions improved 1% year over year to $1,702 million in the second quarter, beating our estimate of $1,680.3 million. It was supported by increased recurring revenues from processing volumes, as well as professional services. The organic revenue growth was 2%. Adjusted EBITDA margin of 42.5% deteriorated 200 bps year over year due to the lower-margin revenue mix.
Merchant Solutions’ revenues were $1,312 million, which climbed 1% year over year and beat our estimate of $1,290.9 million thanks to higher volumes and eCommerce strength. The organic revenue growth came in at 1%. Adjusted EBITDA margin improved 120 bps year over year to 48.3% due to cost efficiencies.
Revenues from Capital Market Solutions increased 6% year over year to $672 million in the quarter under review and beat our estimate of $655.9 million, on the back of recurring revenue growth. The organic revenue growth was reported at 7%. Adjusted EBITDA margin of 50.2% improved 100 bps year over year on the back of solid contribution margins from growing revenues.
The Corporate and Other segment’s revenues of $60 million plunged 43% year over year but beat our estimate of $50.1 million.
Balance Sheet & Cash Flow
Fidelity National exited the second quarter with cash and cash equivalents of $1,982 million, which fell from $2,188 million at 2022-end. Total assets of $53,574 million decreased from $63,278 million at 2022-end.
Long-term debt, excluding the current portion, came in at $13,589 million at the second-quarter end. The figure decreased from $14,207 million as of Dec 31, 2022. The current portion of long-term debt was $785 million while short-term borrowings were $5,144 million.
Total equity of $20,273 million declined from the 2022-end level of $27,226 million.
In the second quarter of 2023, net cash provided by operations of $1,087 million rose from the $1,024 million figure in the prior-year quarter. FIS generated a free cash flow of $953 million in the second quarter, which jumped from $806 million a year ago.
Capital Deployment
Fidelity National rewarded $309 million to its shareholders via dividends in the quarter under review.
Divestiture of Merchant Solutions Business Announced
FIS agreed to divest a 55% stake in its Worldpay Merchant Solutions business in July, to private equity funds managed by GTCR. The deal is likely to close by the first quarter of next year, following which, it will report ownership interest in Worldpay as income from minority interest. Operating results from the unit will be presented as discontinued operations from the third quarter of 2023.
Update on Enterprise Transformation Program
FIS achieved annualized Future Forward cash savings of more than $315 million as of Jun 30, 2023. The company revised its guidance for cash savings of $1 billion by 2024-end.
3Q23 View
Revenues are expected to remain between $3,640 million and $3,690 million, while adjusted EBITDA is estimated to be in the $1,580-$1,625 millionband.
2023 Guidance
Management revised the guidance for net revenues upward, which is expected to be between $14,500 million and $14,631 million compared with the 2022 reported figure of $14,528 million.
Adjusted EBITDA is forecasted within $6,025-$6,146 million for 2023, with the margin expected in the range of 41.6-42%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Fidelity National has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Fidelity National has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Fidelity National is part of the Zacks Financial Transaction Services industry. Over the past month, Equifax (EFX - Free Report) , a stock from the same industry, has gained 4.9%. The company reported its results for the quarter ended June 2023 more than a month ago.
Equifax reported revenues of $1.32 billion in the last reported quarter, representing a year-over-year change of +0.1%. EPS of $1.71 for the same period compares with $2.09 a year ago.
Equifax is expected to post earnings of $1.78 per share for the current quarter, representing a year-over-year change of +2.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.
Equifax has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.