Yahoo Finance Why Is Fidelity National (FIS) Up 2.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Fidelity National Information Services (FIS). Shares have added about 2.4% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Fidelity National Beats Q1 Earnings on Margin Expansion
Fidelity National reported first-quarter 2024 adjusted EPS of $1.10, which beat the Zacks Consensus Estimate by 14.6%. However, the bottom line declined 14.7% year over year.
Revenues dipped 29.6% year over year to $2.5 billion. However, the top line beat the consensus mark of $2.4 billion.
The first-quarter earnings benefited from favorable EBITDA margin expansion, strong recurringrevenue growth in both segments and strong new sales growth. However, negative professional services revenue growth in both segments and a less favorable revenue mix in Capital Markets partially offset the results.
Q1 Performance
The cost of revenues was $1.55 billion in the quarter under review, which slipped 1.2% year over year. Selling, general and administrative expenses of Fidelity National increased 10.8% year over year to $573 million and were higher than our estimate of $524.9 million. Net interest expenses declined 45.8% year over year to $77 million and was lower than our estimate of $95 million.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) rose 8% year over year to $975 million and beat our estimate of $966.2 million. Adjusted EBITDA margin of 39.5% improved 200 basis points (bps) year over year in the first quarter.
Segmental Update
Revenues from the Banking Solutions unit increased 2% year over year to $1.68 billion, higher than the Zacks Consensus Estimate and our estimate of $1.67 billion. Improved adjusted recurring revenues and adjusted non-recurring revenues shaped the segment’s quarterly performance. Adjusted EBITDA was $745 million in the quarter under review, which surpassed the consensus mark of $697 million and our estimate of $726.3 million. Adjusted EBITDA margin of 44.3% improved 350 bps year over year, attributable to cost efficiencies.
The Capital Market Solutions segment recorded revenues of $706 million, which grew 7% year over year in the first quarter and beat the Zacks Consensus Estimate of $705 million. The metric improved as a result of strong recurring revenue growth. Adjusted EBITDA of $335 million missed the consensus mark of $342 million. Adjusted EBITDA margin deteriorated 80 bps year over year to 47.4% due to a less favorable revenue mix.
The Corporate and Other segment’s revenues amounted to $77 million, which declined 12% year over year in the quarter under review. The reported figure surpassed the Zacks Consensus Estimate of $66 million and our estimate of $70.3 million. Adjusted EBITDA loss was $105 million in the quarter under review, wider than the Zacks Consensus Estimate of a loss of $76 million. This segment’s results suffered due to lower recurring revenues and higher operating expenses.
Financial Update (As of Mar 31, 2024)
Fidelity National exited the first quarter with cash and cash equivalents of $3.3 billion, up from $440 million at 2023-end. Total assets of $35.9 billion fell from $55.1 billion at 2023-end.
Long-term debt, excluding current portion, amounted to $10.6 billion, down from $13 billion at 2023-end. The current portion of long-term debt totaled $587 million. There were no short-term borrowings at 2023-end.
Total equity of $18 billion dropped from $19.1 billion at 2023-end.
Fidelity National generated net cash from operations of $206 million in the first quarter, which declined 29.2% year over year. Free cash flows declined 44.8% year over year to $95 million.
Share Repurchase & Dividend Update
Fidelity National rewarded $1.6 billion to its shareholders to the tune of share buybacks worth $1.4 billion and dividends of $209 million in the first quarter.
Capital Deployment Targets
Management aims to return a minimum of roughly $4 billion to its shareholders through share buybacks by the end of 2024, which includes $1.4 billion in repurchases conducted in the first quarter of 2024. Fidelity National reiterates its aim to achieve a dividend payout ratio of 35% of adjusted net earnings, excluding equity method investment earnings (loss).
Update on Enterprise Transformation Program
Fidelity National earlier reiterated its aim to achieve cash savings of $1 billion by 2024-end, out of which more than 75% belong to run-rate cash savings. It is also likely to benefit the company by bringing about a year-over-year increase of $280 million in adjusted EBITDA in 2024.
2Q24 View
Management forecasts revenues between $2.465 billion and $2.490 billion. Adjusted EBITDA is projected to be in the range of $980-$995 million. Adjusted EPS is estimated to be between $1.21 and $1.25. Adjusted EBITDA margin is projected to be in the range of 39.8-40%.
Revenues from the Banking Solutions unit are anticipated to witness a year-over-year increase of 2-2.5%, while it is estimated to grow in the range of 7-8% for the Capital Market Solutions business.
2024 Guidance
Revenues are expected to lie within $10.10-$10.15 billion, the mid-point of which indicates an improvement of 3.1% from the 2023 figure of $9.8 billion.
The Banking Solutions and Capital Market Solutions units are estimated to record year-over-year increases of 3-3.5% and 6.5-7%, respectively.
Adjusted EBITDA is projected between $4.10 billion and $4.14 billion in 2024, the midpoint of which suggests 3.7% growth from the 2023 figure of $4 billion. Adjusted EBITDA margin is anticipated within 40.6-40.8%.
Adjusted EPS guidance is revised upward between $4.88 and $4.98, the mid-point of which implies a 46.3% surge from the 2023 figure of $3.37. EPS is expected to benefit from lower effective tax rate, interest expenses and shares outstanding. 45% ownership in Worldpay is expected to generate income of $400-$415 million in 2024, benefiting the metric.
Net interest expenses are likely to stay within $320-$325 million for 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 8.45% due to these changes.
VGM Scores
At this time, Fidelity National has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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, Fidelity National has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Fidelity National belongs to the Zacks Financial Transaction Services industry. Another stock from the same industry, Bread Financial Holdings (BFH), has gained 2.5% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.
Bread Financial reported revenues of $991 million in the last reported quarter, representing a year-over-year change of -23.1%. EPS of $2.73 for the same period compares with $9.08 a year ago.
For the current quarter, Bread Financial is expected to post earnings of $1.45 per share, indicating a change of +14.2% from the year-ago quarter. The Zacks Consensus Estimate has changed +10.9% over the last 30 days.
Bread Financial has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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Fidelity National Information Services, Inc. (FIS) : Free Stock Analysis Report
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