On Tuesday, Baird updated its assessment of Fidelity National Information Services (NASDAQ:III) (NYSE:FIS), increasing the price target on the stock to $94 from $92 while maintaining a Neutral rating. The adjustment follows the company's third-quarter performance, which surpassed expectations, and an increased earnings per share (EPS) guidance for 2024. The positive results were attributed to contributions from Worldpay and a reduction in interest expenses.
The analyst at Baird noted the company's recent success, acknowledging the third-quarter beat and the upward revision of the EPS forecast. However, the analyst expressed caution regarding the future, citing potential EPS headwinds. These include the likelihood of rising interest rates, increasing tax rates, and a higher depreciation and amortization (D&A) from Worldpay, which could impact earnings in the upcoming quarters.
Fidelity National Information Services' financial outlook appears to be affected by several factors. Particularly, the company faces challenges related to debt refinancing, as over 15% of its debt is set to mature within the next 16 months. This debt currently carries an average interest rate of approximately 1%, and refinancing it could potentially increase the company's interest expenses.
The analyst's cautious stance is further supported by the expectation that Worldpay's D&A is on the rise, which could also influence the company's earnings. Additionally, changes in tax rates are anticipated to present further headwinds to EPS growth in the near term.
Despite these concerns, Baird's updated price target suggests a slight optimism based on Fidelity National Information Services' current trajectory. The firm's recent performance and strategic progress have been recognized, even as the analyst advises a watchful eye on the factors that could dampen earnings growth in the future.
In other recent news, Fidelity National Information Services Inc. (FIS) reported strong third-quarter results, with a 4% increase in adjusted revenue and a substantial 13% year-over-year rise in adjusted earnings per share (EPS) to $1.40. The company also announced an adjusted EBITDA margin of 41.3%. FIS completed the acquisition of Dragonfly Technologies and formed strategic partnerships with EverBank and Commerce Bank.
The company returned $700 million to shareholders through buybacks and dividends, and reaffirmed its $4 billion share repurchase plan. FIS raised its full-year revenue and EBITDA guidance, reflecting its confident outlook and expectations of continued segment growth. According to FIS's management, the company expects to hit the high end of its capital markets revenue growth target of 6.5% to 7%.
The acquisition of Dragonfly is projected to contribute less than $10 million in Q4 revenue, but it is strategic for future growth. Despite a strong overall performance, the company's banking segment growth may not reach the high end of the guidance. FIS's management expects banking solutions growth in 2025 to be between 3.5% and 4.5%, with capital markets projected to grow 7.5% to 8.5%.
InvestingPro Insights
Recent data from InvestingPro adds depth to Baird's analysis of Fidelity National Information Services (NYSE:FIS). Despite the cautious outlook presented by Baird, FIS has shown impressive market performance, with a 76.66% price total return over the past year and a strong 51.46% year-to-date return. This positive momentum is reflected in the stock trading at 97.52% of its 52-week high.
InvestingPro Tips highlight that FIS has maintained dividend payments for 22 consecutive years, demonstrating financial stability. Additionally, the company's management has been aggressively buying back shares, which could potentially support stock prices.
The company's P/E ratio (adjusted) of 60.03 for the last twelve months as of Q3 2024 might seem high, aligning with Baird's caution. However, this should be considered alongside the PEG ratio of 0.81, suggesting the stock might be undervalued relative to its growth prospects.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for FIS, providing a broader perspective on the company's financial health and market position.
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