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First Data (FDC) Up 1.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for First Data (FDC - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is First Data 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.

First Data Beats Q4 Earnings Estimate, Revenues Up Y/Y

First Data's adjusted earnings per share (EPS) of 38 cents surpassed the consensus mark by a penny but fell short of the year-ago figure by 6 cents. The bottom line was hurt by the normalization of adjusted effective tax rate and unfavorable foreign currency movements, which, however, were partially offset by improved operating performance.

Total segment revenues of $2.19 billion beat the consensus estimate by $21 million. The top line was up 3% year over year on a reported basis, 2% on a comparable accounting basis and 6% on an organic constant currency basis. Impacted by the adoption of ASC 606, consolidated revenues were down 24% year over year to $2.40 billion.

First Data is getting acquired by Fiserv in a $22 billion all-stock deal. Upon closure, Fiserv shareholders will own 57.5% of the combined company and First Data shareholders will own the rest.

Segments in Detail

The Global Business Solutions segment generated revenues of $1.42 billion, which grew 9% year over year on a reported basis, 6% on a comparable accounting basis and 8% on an organic constant currency basis.

Global Financial Solutions revenues came in at $375 million, down 9% year over year on a reported basis,8% on a comparable accounting basisbut up 7% on an organic constant-currency basis.

Network & Security Solutions segment generated revenues of $389 million, down 4% year over year on a reported basis and 1% each on a comparable accounting and organic constant-currency basis.

Operating Results

Total segment EBITDA came in at $855 million, up 1% year over year on a reported basis, 2% on a comparable accounting basis and 7% on an organic constant currency basis. Total segment EBITDA margin of 39.1% declined20 basis points (bps) year over year on a comparable accounting basis but was up 20 bps on an organic constant currency basis.

Operating profit increased 7.2% year over year to $534 million. Operating profit margin climbed to 22.3% from 15.8% in the prior-year quarter. Total expenses declined 29% from the year-ago quarter’s tally to $1.87 billion.

Balance Sheet & Cash Flow

First Data exited the fourth quarter of 2018 with cash and cash equivalents of $555 million compared with $601 million at the end of the prior quarter. Long-term debt was $16.4 billion compared with $16.9 billion at the end of the previous quarter.

The company generated $498 million of cash from operating activities in the reported quarter. Free cash flow was $284 million. Capital expenditures were $152 million.

2019 Guidance

First Data provided 2019 guidance that excludes impacts of its merger with Fiserv and previously announced dispositions. For total segment revenues, management expects organic constant currency growth of 5-6%. Total segment EBITDA is expected to register 6-8% growth on an organic constant currency basis. Adjusted earnings are expected in the range of $1.55-$1.58 per share. Full-year free cash flow is projected at more than $1.5 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, First Data has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Outlook

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




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