Earnings Preview: Fidelity - Analyst Blog

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Fidelity National Information Services Inc. (FIS) is all set to announce its fourth quarter and full-year 2011 results on February 13, 2012, after the market closes. Fidelity reported a sedate third quarter, beating the Zacks Consensus Estimate by a penny.

Third Quarter Recap

In the third quarter of 2011, Fidelity earned 62 cents per share, an increase of 19.2% from the year-ago quarter, primarily driven by a 10.8% year-over-year growth in revenues to $1.43 billion. Revenues rose 4.1% organically on the back of strong results from Financial Solutions and International Solutions.

Although Fidelity did not provide any quarterly guidance, the company expects full year earnings in the range of $2.24 to $2.30 per share. This implies that the company has to earn 62 cents to 68 cents per share to meet its current quarter guidance. Fidelity expects revenues to grow 10.0% year over year for fiscal 2011. For further details please see Fidelity Beats Marginally .

Estimate Revision Trend

The Zacks Consensus Estimate for the fourth quarter is currently pegged at 65 cents, up 1.6% from 64 cents in the year-ago quarter. This is based on an estimated year-over-year revenue growth of 6.7% to $1.49 billion.

In the last 30 days, only one out the 14 analysts covering the stock lowered the estimate for the fourth quarter. However, the revision did not trigger any movement in estimates, which stood at 65 cents over the last 30 days.

We note that Fidelity has posted an average earnings surprise of 3.39% in the trailing four quarters, implying that it has outdone the Zacks Consensus Estimate by the same magnitude for the last four quarters. We don't expect a major change in the earnings trend for the current quarter.

Our Recommendation

We believe that Fidelity remains a dominant name in the financial services market, primarily due to its expanding client base, particularly in the banking sector. Enhanced operating efficiency has been the primary reason for Fidelity's ever-growing banking clientele. Currently, increasing consolidation, tightened regulations, lower interest rates and the liquidity crunch have forced U.S. banks, particularly the small ones to look for ways to differentiate their services in a cost effective way. Fidelity's low-cost platform has emerged as a savior for these institutions in recent times.

However, the recently announced merger of London-based banking software maker Misys Plc (MSY) and Swiss financial services provider Temenos Group AG (TEMN) is expected to provide significant competition to Fidelity in the banking sector going forward. The proposed merger will create the world's largest risk-management software provider with a clientele of approximately 1000 banks.

We also believe that sluggish growth in the payment solutions business and a difficult macroeconomic environment in Europe will continue to hurt Fidelity's profitability going forward. Moreover, the ongoing legal battle between Fidelity and its closest rival Fiserv Inc. (FISV) will remain an overhang in the near term.

We, therefore, maintain our Neutral recommendation over the long term (6-8 months). We note that Fidelity has outperformed the broader S&P 500 market by 15.9% over the last three months. However, the near-term concerns compel us to maintain our cautious approach. Currently, Fidelity has a Zacks #4 Rank, which implies a Sell rating in the short term (1-3 months).

FIDELITY NAT IN ( FIS ): Free Stock Analysis Report

FISERV INC ( FISV ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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