Amidst a notable daily gain of 5.48%, and an impressive three-month increase of 20.89%, Fidelity National Information Services Inc (FIS, Financial) presents an intriguing case for analysis. With a reported Loss Per Share of 10.23, the question arises: is the stock modestly undervalued? This article delves into the valuation of FIS, encouraging readers to explore the nuanced financial landscape that defines its market position.
Company Overview
Fidelity National Information Services, a pivotal player in the financial services technology sector, has expanded its offerings significantly since its inception. The company's evolution, marked by strategic acquisitions such as SunGard in 2015 and Worldpay in 2019, has positioned it as a leader in providing core processing and ancillary services to banks and investment firms. Although FIS has scaled down its stake in Worldpay, its influence across the United States and United Kingdom remains substantial. Currently, the stock is trading at $74.31, with a market capitalization of $41.70 billion, juxtaposed against a GF Value of $101.45, suggesting a potential undervaluation.
Understanding GF Value
The GF Value is a proprietary measure designed to predict a stock's intrinsic value, factoring in historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. For Fidelity National Information Services, the GF Value suggests that the stock is modestly undervalued. This valuation implies that the long-term return on FIS stocks is likely to surpass its business growth, offering an attractive investment opportunity for value investors.
Financial Strength and Risks
Investing in companies with robust financial strength reduces the risk of permanent capital loss. Fidelity National Information Services, however, poses certain financial risks, as evidenced by its low cash-to-debt ratio of 0.02, placing it in a precarious position compared to 97.64% of its peers in the Software industry. This financial metric, combined with a GuruFocus financial strength rating of 3 out of 10, highlights a potential area of concern for investors.
Profitability and Growth Prospects
The profitability of Fidelity National Information Services, which has maintained profitability in 8 out of the past 10 years, appears stable with an operating margin of 14.53%, outperforming 81.57% of its industry counterparts. However, the company's growth metrics, including a 3-year average annual revenue decline of 6%, suggest challenges ahead. This aspect, coupled with an EBITDA growth rate of -0.2%, could impact long-term value creation.
ROIC vs. WACC
A critical assessment of a company's profitability is the comparison of its Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). For Fidelity National Information Services, the ROIC stands at 3.25%, which is significantly lower than its WACC of 8.16%. This discrepancy indicates inefficiencies in generating cash flow relative to the capital invested, potentially deterring investment.
Conclusion
While Fidelity National Information Services (FIS, Financial) appears modestly undervalued according to the GF Value, potential investors should consider the financial risks and growth challenges highlighted. For those interested in further details about FIS's financial health and market prospects, exploring its 30-Year Financials is recommended.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
