It has been about a month since the last earnings report for Fidelity National Information Services (FIS - Free Report) . Shares have added about 3.7% 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 drivers.
Fidelity National Q3 Earnings Top, Expenses Decline
Fidelity’s third-quarter 2018 adjusted earnings per share from continuing operations came in at $1.33, surpassing the Zacks Consensus Estimate of $1.30. Also, earnings improved 13.7% from the year-ago quarter figure of $1.17.
Lower expenses and expanding margin were the key tailwinds. However, decline in revenues and huge outstanding debt remain key concerns.
On a GAAP basis, the company reported net earnings of $154 million or 47 cents in the quarter compared with $59 million or 18 cents in the prior-year quarter.
Decline in Expenses Partially Offset by Lower Revenues
GAAP revenues for the quarter came in at $2.08 billion, which declined nearly 1% year over year. Also, the figure lagged the Zacks Consensus Estimate of $2.09 billion.
Organic revenue growth was nearly 4% in the quarter.
Selling, general and administrative expenses came in at $283 million, down 12.9% year over year.
Segment wise, Integrated Financial Solutions’ GAAP revenues grew 5.1% to $1.09 billion while revenues from Global Financial Solutions declined 6.1% to $916 million. Corporate/Other revenues decreased 6.6% to $78 million.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) rose nearly 8% year over year to $808 million while adjusted EBITDA margin expanded 290 basis points to 38.7%.
Balance Sheet & Cash Flow
As of Sep 30, 2018, cash and cash equivalents were $632 million compared with $786 million as of Sep 30, 2017. Debt outstanding was nearly $9.04 billion.
In the third quarter, net cash provided by operations was $464 million and free cash flow was $356 million.
Fidelity paid dividends worth $105 million in the quarter and repurchased 4.3 million shares at a total cost of about $465 million. As of Sep 30, 2018, the company had about $2.83 billion share repurchase authorization remaining.
Guidance for 2018
Fidelity expects organic revenue growth to be about 3% while GAAP revenues are expected to decline 2.5%.
Adjusted earnings per share are expected to be in the band of $5.20-$5.24, up from $5.18-$5.34 expected previously.
Adjusted EBITDA margin is expected to be about 37%, unchanged from prior guidance
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Fidelity National has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
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.