From Core Signings To Shareholder Value Surge

Key Takeaways

• Reinvigorated sales strategy and competitive takeaways in community banking lead to a record year in new core signings, promising future revenue growth.
  
• Launch of new products and strategic partnerships, like with Curinos and Lendio, signals expansion and potential for enhanced top-line growth and net margins.
  
• Reliance on digital sales and core signings alongside efficient implementation and external factors like share repurchase plans or Worldpay's performance are critical to revenue and margins.

Catalysts

Fidelity National Information Services, Inc.

• Reinvigorated sales strategy and execution leading to a record year of new core signings, particularly driven by competitive takeaways and increased traction in the community banking market. This directly impacts future revenue growth as these new signings bring in recurring revenue streams.
  
• Significant growth in digital business sales (over 30% in the first half of 2024) driven by successful cross-selling into existing core customers and displacing competitors. This signals potential for continued expansion in revenue from high-margin digital products and services.
  
• Launch of innovative new products and partnerships, such as with Curinos and Lendio, and the Climate Risk Financial Modeler, addressing key market needs and expanding the product portfolio, likely to contribute to both top-line growth and improved net margins through product differentiation and higher value solutions.
  
• Strong demand for differentiated loyalty solutions and payment offerings, along with strategic high-profile client wins across various segments, indicating an enhanced competitive positioning that could lead to sustained revenue acceleration and market share gains.
  
• Commitment to returning capital to shareholders with a significant share repurchase program, enhancing shareholder value, and possibly contributing to EPS growth through reduced share count.
  

Assumptions

• Analysts are assuming Fidelity National Information Services's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 18.6% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $4.65) by about August 2027, up from $584.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.6 billion in earnings, and the most bearish expecting $572 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.0x on those 2027 earnings, down from 74.0x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.9x.
• Analysts expect the number of shares outstanding to decline by 7.92% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.02%, as per the Simply Wall St company report.

Risks

• The strong reliance on new core signings and digital sales for growth may pose execution risks if market conditions change or customer preferences shift, potentially impacting future revenue.
  
• Implementation efficiency improvements are necessary to support the acceleration seen in bookings; any delays or failures in these processes could hinder the ability to convert sales into revenue.
  
• While professional services are expected to pick up, any shortfall in demand for these services or failure to execute could impact the anticipated revenue acceleration.
  
• The $4 billion share repurchase commitment relies on the ability to repatriate cash internationally; any regulatory or logistical challenges in repatriation could affect the company's ability to meet this target.
  
• The raised expectation for EMI (Equity Method Investment) contribution from Worldpay hinges on continued operational improvements and benefits from refinancing; any underperformance by Worldpay or adverse changes in consumer spending could impact this contribution, thereby affecting net margins or earnings.

Valuation

• The analysts have a consensus price target of $84.5 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 $93.0, and the most bearish reporting a price target of just $72.0.
  
• 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 21.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $79.16, the analyst's price target of $84.5 is 6.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.