Fidelity National Information Services, Inc. (FIS) is expected to benefit from the growing demand for digital payment solutions, digitization efforts, and a healthy product portfolio. With a market cap of $34.1 billion, this stock holds great potential and is currently ranked a Zacks Rank #3 (Hold).
According to Zacks Consensus Estimate, Fidelity National’s 2023 earnings are set to reach $5.95 per share, which is an improvement of 1.4% compared to the past month. FIS has seen 12 upward revisions and no downward revisions during this time, with the company beating earnings expectations in three of the four previous quarters, with an average surprise of 2.3%. The consensus estimate for 2023 revenues is projected to be $14.5 billion, which is almost flat compared to 2022. However, declines in software licensing revenues are expected to be offset by increased revenues in transaction processing and services, along with professional services.
Reasons for Holding Fidelity National Stock
Fidelity National offers a lower valuation than its peers in the current financial transaction services industry, with investors willing to pay a higher premium. FIS currently has a 12-month forward price-to-earnings ratio of 9.2X compared to the industry average of 21.2X. With e-commerce growing globally, Fidelity National is also poised to take advantage of this market which is expected to be worth $8.5 trillion by 2026, despite the current economic volatility.
The company is expected to benefit from account-to-account payments, which will help to reduce the cost of payment acceptance for merchants. Fidelity National’s Merchant Solutions segment is also expected to benefit from the increased volumes of rising travel, with consumer spending and cross-border transaction increasing in the coming quarters. Its well-performing Banking and Capital Markets businesses are major positives, focused on top-tier strategic partnerships and future-proof underlying technologies to grow its operations. Through expanding its footprint in the crypto market, FIS has partnered with cryptocurrency platforms like Crypto.com and OKCoin to support global expansion.
FIS also employs inorganic growth strategies which boost its business, capture more market share, and increase capabilities. The recent Payrix acquisition is a great example of this approach to bolstering the company’s position in the market. Furthermore, to optimize efficiency and profitability, FIS plans to opt for a tax-free spin-off of its Merchant Solutions business.
Key Concerns
However, Fidelity National still faces several challenges that could impede the stock’s growth in the future. For example, increasing costs are eating into its profits, with selling, general, and administrative expenses seeing a CAGR of 26% over the last five years ending 2022. The growing costs associated with a multi-year modernization of platforms and applications are anticipated to keep its margins under pressure. In addition, its high long-term debt could cause concerns. Its long-term debt, excluding the current portion, was $13,905 million at the first-quarter end, which is significantly higher than the cash and cash equivalents of $1,871 million. Nevertheless, Fidelity National has a systematic and strategic plan of action which bodes well for the long run.
Better-Ranked Players
If you’re looking to invest in the business services space, some better-ranked options include Remitly Global, Inc. (RELY), Paysafe Limited (PSFE), and Repay Holdings Corporation (RPAY). All three stocks are currently ranked #2 (Buy) by Zacks and are projected to show strong growth in the future.
Disclaimer: The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
