Future Initiatives Will Open New Opportunities In Digital Payments And Lending

Key Takeaways

• Focus on digital, payments, and strategic partnerships is driving revenue growth and improved net margins through high-margin recurring streams.
  
• Cost management and specialized sales enhance margins and revenue, alongside share repurchases aimed at boosting earnings per share growth.
  
• High competition, implementation delays, and slow collections could hinder revenue growth and strain cash flow, impacting overall earnings and margins.

Catalysts

Fidelity National Information Services, Inc.

• FIS is focusing on key growth vectors such as digital, payments, and commercial lending, which are expected to drive accelerated revenue growth in the future. This focus is likely to increase revenue and improve net margins due to higher-margin recurring revenue streams.
  
• The company is employing a specialized sales approach to better cross-sell solutions to clients, potentially resulting in increased revenue and higher net margins as more sales come from specialized, higher-margin products in key verticals.
  
• FIS has been actively executing its Future Forward strategy, which includes cost management and business simplification efforts leading to margin expansion. This is projected to further improve slightly net margins in 2025.
  
• The company is targeting a significant increase in share repurchases, from around $800 million to $1.2 billion, indicating a focus on returning capital to shareholders and potentially increasing EPS growth in the near term.
  
• Strategic partnerships, such as the one with Affirm for buy-now-pay-later capabilities, are expected to help FIS unlock new revenue streams and position itself uniquely in the evolving payments landscape, positively impacting revenue growth.

Fidelity National Information Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fidelity National Information Services's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.8% today to 17.7% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $3.98) by about March 2028, up from $787.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.4 billion in earnings, and the most bearish expecting $1.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.8x on those 2028 earnings, down from 49.3x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 4.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

Fidelity National Information Services Future Earnings Per Share Growth

Risks

• Delays in client-requested implementations, which affect the timing of revenue recognition and might impact quarterly revenue growth projections.
  
• The Worldpay business revenue is expected to be slightly down in 2025, creating a minor headwind rather than a growth driver, impacting total revenue growth.
  
• Aggressive supplier payments and late collections have contributed to lower-than-expected cash conversion, which could strain free cash flow and affect net margins.
  
• High competition and fragmented market landscape in targeted growth areas may hinder achieving expected sales growth, thereby impacting anticipated revenue increases.
  
• Potential delays in deal closures due to regulatory scrutiny or client timelines could impact revenue realization and future growth prospects, affecting overall earnings.

Valuation

• The analysts have a consensus price target of $84.698 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 $113.0, and the most bearish reporting a price target of just $66.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.4 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 7.6%.
• Given the current share price of $73.29, the analyst price target of $84.7 is 13.5% 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.