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Why Is Fidelity National (FIS) Up 2.7% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for Fidelity National Information Services, Inc. (FIS - Free Report) . Shares have added about 2.7% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is FIS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Fidelity Beats on Q1 Earnings, Revises View

Fidelity’s first-quarter 2018 adjusted earnings per share from continuing operations came in at $1.09, surpassing the Zacks Consensus Estimate of $1.04. Also, earnings improved 32.9% from the year-ago quarter figure of 82 cents.

First-quarter results reflect lower expenses and expanding margin. Also, the company raised full-year 2018 guidance on relatively strong first-quarter performance. However, decline in revenues and huge outstanding debt remains key headwinds.

The company reported net earnings of $182 million or 54 cents in the quarter compared with $129 million or 39 cents in the prior-year quarter.

Decline in Expenses Partially Offset by Lower Revenues

GAAP revenues for the quarter came in at $2.07 billion, which declined 3.8% year over year. However, the figure surpassed the Zacks Consensus Estimate of $2.04 billion.

Organic revenue growth was 3.3% in the quarter.

Selling, general and administrative expenses came in at $358 million, down 12.9% year over year.

Segment wise, Integrated Financial Solutions’ GAAP revenues grew 2.3% year over year to $1.04 billion while revenues from Global Financial Solutions declined 7.6% to $927 million. Corporate/Other revenues decreased 27.6% to $78 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) rose nearly 6.7% year over year to $705 million while adjusted EBITDA margin expanded 340 basis points to 34.1%.

Balance Sheet & Cash Flow

As of Mar 31, 2018, cash and cash equivalents were $725 million compared with $705 million as of Mar 31, 2017. Debt outstanding was nearly $9.08 billion.

In the first quarter, net cash provided by operations was $354 million and free cash flow was $226 million.

Fidelity paid dividends worth $106 million in the quarter and repurchased 4.1 million shares at a total cost of about $400 million.

Guidance for 2018

Fidelity expects organic revenue growth to be in the range of 2.5-3.5% while GAAP revenue growth is expected to decline 1.5-2.5%.

Adjusted earnings per share are expected to be in the band of $5.14-$5.34, up from $5.10-$5.30 expected previously.

Adjusted EBITDA margin is expected in the range of 36-37%.

Management expects adjusted depreciation and amortization to be in the range of $660-$680 million.

Net interest expenses are expected to come in about $280 million in 2018.

Full-year 2018 effective tax rate is anticipated to be about 20%.

Management expects net minority interest to be about $27 million.

Capital expenditures of about 7% of revenues are likely to be made in 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter compared to two lower.

Fidelity National Information Services, Inc. Price and Consensus

 

VGM Scores

At this time, FIS has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, FIS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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