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Fidelity (FIS) Rides on Recurring Revenues, Digitization

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Fidelity National Information Services, Inc. (FIS - Free Report) is strategically positioned for growth, fueled by its diverse customer base, high recurring revenues, ongoing digital strategy, market strength, and core business resilience. Headquartered in Jacksonville, FL, the company specializes in delivering banking and payments technology solutions, processing services and information-based services to the financial services sector.

In this analysis, we'll explore the growth drivers and outlook and highlight the key factors investors should monitor. Let’s delve deeper.

Through strategic use of technology, FIS addresses key business needs, promotes innovation and enriches customer experiences. The company's proactive approach to acquisitions and collaborations enhances its competitive edge, which is a notable catalyst for its growth trajectory.

It expects 2024 revenues to be within $10.10-$10.15 billion, the mid-point of which predicts an improvement of 3.1% from the 2023 figure of $9.8 billion. The growth will likely be supported by increasing numbers in Banking Solutions and Capital Market Solutions businesses. The Banking Solutions and Capital Market Solutions units are estimated to record year-over-year increases of 3-3.5% and 6.5-7%, respectively. 

The Banking Solutions business offers transaction processing software and complementary applications. The Capital Market Solutions business offers financial institutions across the world a broad array of buy and sell-side solutions. Increasing adjusted recurring revenues will likely support these segments’ growth.

Fidelity's emphasis on digital transformation strategically aligns it to capitalize on global economic shifts. By investing in technology and innovation, particularly in high-growth markets, FIS broadens its total addressable market. The growing reliance on mobile devices worldwide underscores the importance of mobile banking, where its pioneering solutions, such as mobile wallets, provide a competitive advantage for financial institutions.

Other companies that are also gaining heavily from the digitization of the global economy include Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) and American Express Company (AXP - Free Report) .

In the December quarter, Visa’s processed transactions grew 9% year over year to 57.5 billion. During the same period, Mastercard’s gross dollar volume (representing the aggregated dollar amount of purchases made and cash disbursements obtained from Mastercard-branded cards) rose 10% on a local-currency basis to $2.4 trillion. American Express witnessed its network volumes of $434.4 billion rise 5% year over year on the back of higher consumer spending.

Now coming back to Fidelity, its adjusted EBITDA for 2024 is projected within $4.1-$4.14 billion, the midpoint of which suggests 3.7% growth from the 2023 level of $4 billion. FIS expects the adjusted EBITDA margin to be within 40.6-40.8%. Adjusted EPS is forecasted to be between $4.66 and $4.76, the mid-point of which implies a 39.8% surge from the 2023 figure of $3.37. The company beat on earnings in two of the last four quarters and missed twice.

Key Concerns

However, there are a few factors that investors should keep an eye on. One, for example, is high debt. Long-term debt, excluding current portion, amounted to $13 billion at 2023-end, while cash and cash equivalents of $440 million decreased 3.5% from the 2022-end level. This can pose challenges for the company's financial flexibility.

Also, the company is undertaking a multi-year modernization initiative for its platforms and applications following the successful consolidation of data centers and the modernization of its IT infrastructure. These upgrades are likely to result in increased costs in the short term. Operating expenses within the Banking Solutions and Capital Market Solutions units experienced year-over-year increases of 1.5% and 6.5% in 2023, respectively. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.

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