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Why Is Fidelity National (FIS) Up 0.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Fidelity National Information Services (FIS - Free Report) . Shares have added about 0.8% in that time frame, underperforming 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 Q4 Earnings Beat, Expenses Decline

Fidelity’s fourth-quarter 2018 adjusted earnings per share from continuing operations came in at $1.60, surpassing the Zacks Consensus Estimate of $1.58. Also, the bottom line improved 29% from the year-ago quarter figure of $1.24.

Lower expenses and expanding margin were the key tailwinds. Slight growth in GAAP revenues was another positive factor. However, huge outstanding debt posed a key concern.

On a GAAP basis, the company reported net earnings attributable to common stockholders of $299 million or 91 cents in the quarter compared with $934 million or $2.77 in the prior-year quarter. In fourth-quarter 2017, the company reported a large favorable adjustment due to the tax reform.

For full-year 2018, adjusted net earnings attributable to common stockholders came in at $1.7 billion or $5.23 per share compared with $1.4 billion or $4.27 per share in the prior year. The Zacks Consensus Estimate was pegged at $5.22.

Revenues Increase, Expenses Decline

GAAP revenues for the quarter came in at $2.17 billion, which increased marginally year over year. However, the figure lagged the consensus estimate of $2.21 billion.

For 2018, the company reported GAAP revenues of $8.42 billion, down 2.8% year over year. Also, the top line lagged the consensus estimate of $8.47 billion.

Organic revenue growth was nearly 3% in the quarter.

Selling, general and administrative expenses came in at $321 million, down 4.7% year over year.

Segment wise, Integrated Financial Solutions’ GAAP revenues grew 2.5% to $1.13 billion while revenues from Global Financial Solutions declined 1% to $976 million. Corporate/Other revenues decreased 20.7% to $65 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) rose nearly 5.4% year over year to $864 million while adjusted EBITDA margin expanded 200 basis points (bps) to 39.9%.

Balance Sheet & Cash Flow

As of Dec 31, 2018, cash and cash equivalents were $703 million compared with $665 million as of Dec 31, 2017. Debt outstanding was nearly $9 billion.

In the fourth quarter, net cash provided by operations was $705 million and free cash flow was $551 million.

Fidelity paid dividends worth $105 million in the quarter and repurchased 1.4 million shares at a total cost of about $150 million. As of Dec 31, 2018, the company had about $2.68 billion share repurchase authorization remaining.

Guidance for 2019

Fidelity expects organic revenue growth to be between 3.5% and 4.5% while GAAP revenues are expected to remain flat.

Adjusted earnings per share are expected to be in the band of $7.35-$7.55.

Adjusted EBITDA margin is expected to expand in the range of 150-200 bps.

Management expects negative foreign exchange impact of about $45 million to revenues.

Net interest expenses are expected to be in the range of $295-$305 million.

The effective tax rate is anticipated to be around 19% in 2019.

The company expects to incur capital expenditures equal to 7.5% of revenues.

Free cash flow conversion of about 20% of revenues is expected in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 30.06% due to these changes.

VGM Scores

Currently, Fidelity National has a subpar Growth Score of D, however its Momentum Score is doing a lot 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Fidelity National has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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