Inflation, currency fluctuations and rising interest rates have weighed on corporate earnings this year. Many experts argue that EPS estimates need to drop further, especially for the tech space which is highly exposed to the three aforementioned market headwinds. An established fintech company has decent expected earnings growth, but many macroeconomic risks are at the forefront of investors’ concerns. Shares sank as a result.
1-year movements: dollar +19%, medium-term treasury bills -13%
According to Bank of America Global Research, Fidelity National Information Services (NYSE:FIS) employs more than 47,000 people worldwide. FIS provides software, services and technology outsourcing to a wide range of institutions in the financial services industry. In 2021, FIS generated revenue of $13.88 billion, adjusted EBITDA of $6.1 billion, EPS of $6.55 billion and free cash flow of $3.6 billion. Recently the FIS announced that Erik Hoag will succeed Woody Woodall as the new Chief Financial Officer effective November 4th.
The Jacksonville, Florida-based information technology services company, listed on the S&P 500, trades at a high GAAP 65.3 12-month price-to-earnings ratio and pays out in dividends of 2.1%, according to The Wall Street Journal. The company’s non-GAAP earnings are much higher, resulting in a lower earnings multiple of 11.4 using forward operating earnings estimates.
BofA analysts see profits climbing at a healthy pace through 2024. Bloomberg Consensus Forecasts are even more optimistic about FIS profitability in the coming years. Dividend investors should also be optimistic, as the payout amount is expected to increase by more than 20% over the next two years.
With earnings growth and rising yields, the fundamentals look strong. Additionally, FIS’ EV/EBITDA multiple is not too high given its growth rate, and the free cash flow yield is decent and rising.
FIS: earnings, dividends, valuation forecasts
Looking ahead, Wall Street Horizon reports that FIS has an upcoming ex-dividend date of September 15. It will be paid Sept. 30 ahead of the company’s third-quarter earnings date of Thursday, Nov. 3, BMO.
FIS: Calendar of corporate events
Remarkably, FIS has exceeded analysts’ EPS expectations in each of the past 16 quarters, according to Looking for Alpha.
FIS: a solid history of success rates
The technical grip
Although fundamentals and valuation look ideal for FIS, its stock chart warrants caution. Stocks are hovering near 4-year lows after falling more than 40% from an all-time high reached in early 2020. The stock had a bearish triple top for more than a year, but finally fell during the tech sell-off from 2021. $160 was the peak, then the $120-$125 support broke out and then failed in a recovery attempt earlier this year.
Fast forward to today, and the stock is probing new lows. The bears seem in control. I see support in the $73-$80 area based on a moving price target measured from the previous $120-$160 range ($160-$120=$40 , $120 – $40 = $80) and a key 2015 and 2016 pivot point at $73.
FIS: Stocks threaten new lows amid bear market after $160 high
FIS has a strong valuation and has been hit by macro forces beyond its control. I see it as a terrific value stock at the moment, although the technicals suggest more bearish price action ahead. Long-term investors should build a position expecting an additional 10-15% decline. In this case, the fundamentals win out over the charts. The shares look good here.