Acquisition Of Dragonfly Technologies Will Expand Digital Offerings And Enable Cross-Selling

Key Takeaways

• Strategic partnerships and sales momentum are anticipated to drive growth in recurring revenue streams, enhancing revenue stability and growth.
  
• The acquisition of Dragonfly Technologies will expand digital offerings and cross-sell opportunities, boosting revenue through new product integrations.
  
• Reliance on non-GAAP measures and financial adjustments may obscure performance, affect investor confidence, and pressure margins with recent acquisitions and rising costs.

Catalysts

Fidelity National Information Services, Inc.

• FIS's focus on secure strategic partnerships and strong sales momentum across the money lifecycle highlights anticipated future growth in recurring revenue streams. This is expected to enhance revenue stability and growth.
  
• The acquisition of Dragonfly Technologies is projected to expand FIS's digital offerings and create cross-sell opportunities, which could significantly increase revenue from new product integrations and existing customer base enhancements.
  
• Continued traction with core banking signings, particularly in the community bank space and internationally, suggests anticipated revenue growth from increased account acquisitions and long-term customer engagements.
  
• The launch of next-generation treasury solutions in collaboration with market-leading AI companies is set to foster innovative offerings in risk management, potentially improving revenue and aligning with higher-margin products.
  
• Strategic efforts to boost recurring sales and cross-sell activities, coupled with disciplined capital allocation, are expected to support future earnings growth through operational efficiencies and higher net margins.

Fidelity National Information Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fidelity National Information Services's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 18.5% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $4.29) by about December 2027, up from $544.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.7 billion in earnings, and the most bearish expecting $1.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.4x on those 2027 earnings, down from 82.3x today. This future PE is greater than the current PE for the US Diversified Financial industry at 17.9x.
• Analysts expect the number of shares outstanding to decline by 3.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.21%, as per the Simply Wall St company report.

Fidelity National Information Services Future Earnings Per Share Growth

Risks

• The company relies on non-GAAP financial measures like adjusted EBITDA and adjusted net earnings, which may obscure true financial performance and could impact investor perception and confidence, potentially affecting net margins and earnings.
  
• There are adjustments related to the cost of revenue for the output solutions business, which may indicate past financial misreporting that could cast doubt on revenue quality and impact the company’s credibility with investors.
  
• The company's acquisition strategy, including the recent purchase of Dragonfly Technologies, might be dilutive to margins in the short term, affecting net earnings due to integration challenges and realization of synergies.
  
• Higher capital expenditures, increasing to 9% of revenue, affect free cash flow conversion and could limit financial flexibility, impacting net margins and cash-based earnings in the near term.
  
• The aggressive pricing pressures from suppliers and an increased investment in technology amid elevated expenses could compress profit margins, negatively impacting net earnings and overall profitability.

Valuation

• The analysts have a consensus price target of $95.52 for Fidelity National Information Services based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $126.0, and the most bearish reporting a price target of just $75.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $11.3 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 7.2%.
• Given the current share price of $83.17, the analyst's price target of $95.52 is 12.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.