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Why Is Fidelity National (FIS) Up 5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Fidelity National Information Services (FIS - Free Report) . Shares have added about 5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fidelity National due for a pullback? 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, Guidance Up

Fidelity’s second-quarter 2018 adjusted earnings per share from continuing operations came in at $1.23, surpassing the Zacks Consensus Estimate of $1.20. Also, earnings improved 18.3% from the year-ago quarter figure of $1.04.

Lower expenses and expanding margin were the key tailwinds. Also, the company raised full-year 2018 guidance on relatively strong second-quarter performance. However, a decline in revenues and huge outstanding debt remain key concerns.

The company reported net earnings of $212 million or 64 cents in the quarter compared with $139 million or 42 cents in the prior-year quarter.

Decline in Expenses Partially Offset by Lower Revenues

GAAP revenues for the quarter came in at $2.11 billion, which declined 6.7% year over year. Also, the figure lagged the Zacks Consensus Estimate of $2.12 billion.

Organic revenue growth was nearly 1% in the quarter.

Selling, general and administrative expenses came in at $339 million, down 7.9% year over year.

Segment wise, Integrated Financial Solutions’ GAAP revenues grew 3.4% year over year to $1.12 billion while revenues from Global Financial Solutions declined 17.2% to $899 million. Corporate/Other revenues decreased 2% to $83 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) rose nearly 1% year over year to $757 million while adjusted EBITDA margin expanded 260 basis points to 35.9%.

Balance Sheet & Cash Flow

As of Jun 30, 2018, cash and cash equivalents were $683 million compared with $786 million as of Jun 30, 2017. Debt outstanding was nearly $8.89 billion.

In the second quarter, net cash provided by operations was $823 million and free cash flow was $275 million.

Fidelity paid dividends worth $105 million in the quarter and repurchased 2.1 million shares at a total cost of about $200 million. As of Jun 30, 2018, the company has about $3.3 billion share repurchase authorization remaining.

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 $5.18-$5.34, up from $5.14-$5.34 expected previously.

Adjusted EBITDA margin is expected to be about 37%. Previously, the company had expected the metric to fall between 36% and 37%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Fidelity National has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was 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 C. 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 more suitable for momentum investors than those looking for value and growth.

Outlook

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




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