On Monday, Baird reiterated its Neutral rating on Fidelity National Information Services (NASDAQ:III) (NYSE:FIS) with a price target of $94.00. The firm expressed caution regarding the stock, indicating a potential decline to the lower $80s in the coming weeks as investors evaluate the company's earnings per share (EPS) projections for 2025 through 2027.
The analysis by Baird highlighted several income statement metrics that could affect FIS's future financial performance. One concern raised was the potential impact of interest expenses on the company's 2026 estimated EPS. Approximately 20% of FIS's debt, which is at roughly 1% average rates, is due to expire in late 2025 or early 2026, potentially creating a 2% headwind to the 2026 EPS.
Another factor that could pose a challenge to FIS's profitability is the sustainability of its tax rate. Baird's analysis suggests that the current tax rate of 12-13% for FIS might not be maintainable in the long term, especially when compared to the rates of 19-21% seen in similar companies such as Mastercard (NYSE:MA), Visa (NYSE:V), and other financial institutions.
Additionally, Baird noted that depreciation and amortization (D&A) costs related to Worldpay, which have been approximately 1.5% of revenue in 2024, are likely to increase to about 6-8%. This rise in D&A could potentially result in a 1% per year headwind to FIS's EPS for two to three years.
Investors are expected to closely monitor these developments as they may influence FIS's stock performance in the near future. The company's financial outlook, particularly concerning interest expenses, tax rates, and D&A costs, will be key factors in assessing its investment potential.
In other recent news, Fidelity National Information Services (FIS) has reported strong financial performance in the third quarter, with a 4% increase in adjusted revenue and a 13% year-over-year rise in adjusted earnings per share (EPS) to $1.40. The company also reported an adjusted EBITDA margin of 41.3%. FIS completed the acquisition of Dragonfly Technologies and formed strategic partnerships with EverBank and Commerce Bank.
FIS returned $700 million to shareholders through buybacks and dividends, and reaffirmed its $4 billion share repurchase plan. The company raised its full-year revenue and EBITDA guidance, reflecting its confident outlook and expectations of continued segment growth.
In executive changes, Alexandra Brooks was appointed as the new Executive Vice President and Chief Accounting Officer, succeeding Christopher A. Thompson. Analyst firms TD Cowen and Baird maintained Hold and Neutral ratings respectively on FIS, but increased their price targets following the company's Q3 results.
InvestingPro Insights
While Baird maintains a cautious stance on Fidelity National Information Services (NYSE:FIS), recent data from InvestingPro presents a more nuanced picture. Despite concerns about future earnings, FIS has demonstrated strong financial performance in several areas. The company's revenue for the last twelve months as of Q3 2024 stood at $10.03 billion, with a revenue growth of 1.91% over the same period. Moreover, FIS has shown impressive profitability, with an adjusted operating income of $1.815 billion and an operating income margin of 18.09%.
InvestingPro Tips highlight some positive aspects that investors might find encouraging. For instance, FIS "has maintained dividend payments for 22 consecutive years," showcasing a commitment to shareholder returns even in challenging times. Additionally, the company "has a perfect Piotroski Score of 9," indicating strong financial health across various metrics.
It's worth noting that while Baird expresses concerns about future EPS, InvestingPro data shows that FIS is "trading at a low P/E ratio relative to near-term earnings growth," which could suggest potential undervaluation. This perspective is further supported by the fact that "15 analysts have revised their earnings upwards for the upcoming period."
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for FIS, providing a broader context for investment decisions in light of the concerns raised by Baird.
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