Fidelity National (FIS) Down 21.4% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Fidelity National Information Services (FIS). Shares have lost about 21.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Fidelity National due for a breakout? 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 catalysts.
Fidelity National Q4 Earnings Beat on Banking Business
Fidelity National reported fourth-quarter 2022 adjusted earnings per share (EPS) of $1.71, which outpaced the Zacks Consensus Estimate by a whisker. However, the bottom line declined 11% year over year.
Revenues inched up 1% year over year to $3,714 million. The top line beat the consensus mark by a whisker. The organic revenue growth came in at 4% in the quarter under review.
The quarterly results benefited on the back of well-performing Banking and Capital Markets businesses. However, the upside was partly offset by the strain exerted on revenues and margins of the Merchant Solutions business from elevated recessionary impacts in the United Kingdom and the transition of consumer spending from goods to services across the United States.
The cost of revenues of $2,196 million slipped 2.4% year over year. Selling, general and administrative expenses escalated 6.1% year over year to $1,025 million in the fourth quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of Fidelity National fell 6% year over year to $1,605 million. The adjusted EBITDA margin of 43.2% deteriorated 320 basis points (bps) year over year.
On a GAAP basis, Fidelity National reported a net loss attributable to common shareholders of $17,365 million or a loss of $29.28 per share. Notably, earnings of $291 million or 47 cents per share were reported in the prior-year quarter.
Revenues from Banking Solutions improved 3% year over year to $1,717 million in the fourth quarter, higher than the consensus mark of $1,710 million. The organic revenue growth stood at 4%. Adjusted EBITDA margin of 40.7% deteriorated 400 bps year over year due to lower-margin revenue mix and cost inflation.
Merchant Solutions’ revenues were recorded at $1,178 million, which dipped 1% year over year and lagged the consensus mark of $1,206 million. The organic revenue growth came in at 1%. Adjusted EBITDA margin deteriorated 450 bps year over year to 47.8% as a result of lower-margin revenue mix and cost inflation.
Revenues from Capital Market Solutions advanced 8% year over year to $771 million in the quarter under review, beating the consensus mark of $728 million. The organic revenue growth was reported at 10%. Adjusted EBITDA margin of 54.4% improved 220 bps year over year on the back of solid software sales, expense management and operating leverage.
The Corporate and Other segment’s revenues of $48 million plunged 50% year over year and beat the consensus mark of $46 million.
Balance Sheet & Cash Flow
Fidelity National exited the fourth quarter with cash and cash equivalents of $2,188 million, which rose 8.9% from the 2021-end level. Total assets of $63.3 billion dropped 23.7% from the figure in 2021 end.
Long-term debt, excluding the current portion, came in at $14,207 million at the fourth-quarter end. The figure tumbled 4.2% from the level as of Dec 31, 2022. The current portion of long-term debt was at $2,133 million while short-term borrowings were at $3,797 million.
Total stockholders’ equity of $27,218 million plunged 42.5% from the 2021-end level.
In 2022, net cash provided by operations fell 18.1% from the figure in 2021 end to $3,939 million. Fidelity National generated a free cash flow of $643 million in the fourth quarter, which decreased 23.9% year over year.
Fidelity National rewarded $788 million to its shareholders via share buybacks of $508 and dividends worth $280 million in the quarter under review.
On Jan 26, 2023, management approved a quarterly dividend hike. The increased dividend amounting to 52 cents per share will be paid out on Mar 24, 2023, to shareholders of record as of Mar 10, 2023.
Divestiture of Merchant Solutions Business Announced
Concurrent with the fourth-quarter earnings release, Fidelity National unveiled that it intends to opt for a tax-free spin-off of its Merchant Solutions business that is likely to be closed within a year.
Update on Enterprise Transformation Program
Fidelity National is enhancing the target of cash savings that it expects to derive from the Enterprise Transformation Program, which was announced in 2022 and is now named Future Forward. The previous announcement was to receive more than $500 million in cash savings but the same is now anticipated to be $1.25 billion by 2024-end.
Revenues are forecasted to remain between $3,375 million and $3,425 million, while adjusted EPS is estimated to stay in the $1.17-$1.23 band.
Management anticipates net revenues to lie between $14,200 million and $14,450 million, the mid-point of which indicates a 1.4% decline from the 2022 reported figure of $14,528 million.
Adjusted EPS is forecasted within $5.70-$6.00 for 2023, the mid-point of which suggests a 12% fall from the 2022 figure of $6.65.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -13.3% due to these changes.
At this time, Fidelity National has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Fidelity National has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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