On Tuesday, Baird updated its outlook on Fidelity National Information Services (NYSE:FIS), increasing the price target to $92 from the previous $82 while maintaining a Neutral rating on the stock. The firm anticipates a balanced risk/reward situation leading into the third-quarter results but expects the company to deliver solid performance. The analyst predicts that while quarterly revenue should align with expectations, earnings per share (EPS) may outperform due to lower interest expenses and contributions from Worldpay's minority interest.
The analyst's commentary highlighted the steady nature of Fidelity National Information Services' underlying business and the potential for earnings to compound at a reasonable rate. However, the firm noted several factors that could pose modest headwinds to an improved valuation multiple for FIS. These include approximately 25% of EPS being driven by Worldpay, which affects banking revenue and is subject to a transition agreement. Additionally, the firm pointed out that FIS's free cash flow (FCF) conversion rate stands at around 85-90%, and ongoing mergers and acquisitions require add-backs that result in cash payments.
Fidelity National Information Services is expected to have a third-quarter revenue that meets analysts' projections. The company's EPS is likely to surpass estimates, benefiting from specific financial factors such as reduced interest expenses and the minority interest from Worldpay. The analyst expressed a more positive investor sentiment towards the company.
The report also addressed the steady performance of Fidelity National Information Services' core business. Despite this, the analyst remains cautious about assigning a higher multiple due to certain challenges. These challenges include the significant portion of EPS attributed to Worldpay, the less than optimal free cash flow conversion, and the financial adjustments due to ongoing acquisitions.
In summary, Baird has adjusted its price target for Fidelity National Information Services to reflect the company's potential for consistent earnings growth and positive third-quarter expectations. However, the firm maintains a Neutral stance, considering the factors that could limit the stock's valuation growth. The new price target suggests a modest upside from the previous target, with an emphasis on the company's solid fundamentals balanced against the outlined headwinds.
In other recent news, Fidelity National Information Services (FIS) has seen a series of significant developments. The company has raised its full-year 2024 financial outlook, set ambitious targets for adjusted revenue growth, and expanded EBITDA margins for 2025 and 2026. FIS also increased its share repurchase target by $500 million to $4 billion for 2024.
Several analyst firms, including Wolfe Research, TD Cowen, and BofA Securities, have updated their outlooks on FIS. Wolfe Research maintained its Outperform rating, citing the company's growth and margin expansion. TD Cowen raised its price target to $78, maintaining a Hold rating, while BofA Securities increased its target to $90, maintaining a Buy rating. However, Morgan Stanley downgraded FIS from Overweight to Equalweight, citing limited room for growth.
In addition to financial performance, FIS has made strategic moves, including the appointment of Robert Toohey as the new Corporate Executive Vice President and Chief People Officer, effective from January 1, 2025. The company was also involved in the launch of the first U.S. exchange-traded funds (ETFs) tied to ether, marking a significant milestone in the integration of digital assets into the broader financial sector.
InvestingPro Insights
Fidelity National Information Services (FIS) has shown remarkable performance, aligning with Baird's positive outlook. InvestingPro data reveals that FIS has a market cap of $47.9 billion and has delivered an impressive 73.37% price total return over the past year. This strong performance is reflected in the stock trading near its 52-week high, with a price that is 99.81% of its 52-week peak.
InvestingPro Tips highlight that FIS has maintained dividend payments for 22 consecutive years, demonstrating financial stability. This consistency in dividends supports Baird's observation of the company's steady underlying business. Additionally, the company's net income is expected to grow this year, which could contribute to the potential earnings outperformance mentioned in the analyst report.
It's worth noting that FIS is trading at a high earnings multiple, with a P/E ratio of 66.11. This valuation metric aligns with Baird's cautious stance on assigning a higher multiple to the stock. Investors seeking more comprehensive analysis can access additional InvestingPro Tips, as there are 13 more tips available for FIS on the platform.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.