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Fidelity National Info: The Bear Market Could Continue

Shares in Fidelity National Info (FIS) have fallen more than 26% over the past six months, but it wasn’t the only tech stock to lose ground as the entire sector was in the red over the same period. 

Investors increasingly favored other sectors such as energy and materials to take advantage of soaring prices for crude oil and natural gas, as well as many other commodities.

As global central banks move from current accommodative policies to tighter monetary policies, inflation will slow down, which could reignite market interest in tech stocks. However, this is only true if higher interest rates do not hamper the recovery, which could potentially weigh on the sector instead. At present, this type of risk is not small.

As such, I am bearish on this stock for now as more headwinds due to the above factors could lead to some price weakness, making the stock cheaper than current valuations.

Fidelity National Information Services provides technology solutions to U.S. and foreign commercial and financial services firms and global capital markets.

These solutions are designed to facilitate payments and banking while minimizing the risk of fraud and encouraging investment in a secure environment.

Essentially, Fidelity’s state-of-the-art solutions help many companies run their operations efficiently and improve their customers’ experience.

Q4 Earnings 

In the fourth quarter of 2021, total revenue rose by nearly 11% year-over-year to $3.67 billion, thanks to the strong performance of each business unit. However, the growth wasn’t enough to outperform analysts, whose forecasts averaged $3.7 million.

At the very least, it proved beneficial to the bottom line of its income statement, as adjusted net income of $1.2 billion, or $1.92 per share, is up almost 20% year-over-year. Adjusted earnings per share beat the consensus median estimate by $0.02.

Looking Ahead

The company is targeting first-quarter 2022 revenue of $3.42-$3.45 billion (compared to a consensus estimate of $3.49 billion) and is targeting full-year 2022 revenue guidance of $14.78-$14.925 billion (vs. $14.92 billion consensus estimate).

The company also forecasts the first quarter of 2022 adjusted earnings per share of $1.44 to $1.47 (vs. a median consensus estimate of $1.56) and full-year 2022 adjusted earnings per share of $7.25 to $7.37 (vs. $7.29 median consensus estimate).

Outlook

Fidelity National Info and other operators will benefit from the volume and value of merchant-to-merchant transactions, which are expected to intensify globally as capital markets increase the provision of financing and push the banking system to provide adequate solutions to support the environment. 

Wealth to and from China will provide an incredible boost to the above in the coming years, as the Asian country is the world’s largest investor, according to data released by the Chinese Ministry of Commerce last September. China also has become a popular destination for foreign investors thanks to the continued improvement in local economic conditions, according to a recent opinion by China researcher Nicholas R. Lardy.

Suppose Fidelity has adjusted its growth strategy under these circumstances. In that case, this could be reflected in a significant price increase once the turbulence of the current phase of the cycle has been overcome. Otherwise, there is no other successful way to leverage global reach to accelerate innovation. 

The company appears to be on the right track as its profitability continues to improve significantly and boasts an EBITDA margin of 38% (vs. the industry median of 14.2%).

Financial Condition 

The balance sheet isn’t strong, as an Altman Z-Score points to trouble spots, meaning the company faces bankruptcy in the next few years if the situation deteriorates sharply. That shouldn’t be the case as Fidelity’s profitability recovers from the second-and third-quarter 2020 slumps due to the COVID-19 crisis. 

Dividend 

Fidelity pays dividends, which is not common in the industry. On March 25, the company will pay a quarterly dividend of $0.47 per common share, up 20.5% year over year. The payment results in a forward dividend yield of 1.9% as of this writing.

Wall Street’s Take

In the past three months, 21 Wall Street analysts have issued a 12-month price target for FIS. The company has a Strong Buy consensus rating, based on 17 Buy, four Hold, and zero Sell ratings.

The average Fidelity National Info price target is $139.29, implying 41.1% upside potential.

Conclusion

Most likely, the company is on track to increase profitability, which will provide fresh lymph to strengthen the balance sheet. The share price has been falling lately and could continue the trend over the next few months, creating a cheaper entry point into a leading and good financial technology solutions provider with interesting growth prospects.

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