FIS Earnings: Tracking a Bit Ahead of Expectations

Fidelity National Information Services’ FIS second-quarter results were not impressive in an absolute sense, but the company is holding steady and tracking a bit ahead of our expectations. We remain comfortable with our $76 per share fair value estimate for the narrow-moat company and consider shares undervalued, although the long-term picture will be more complicated given the company’s decision to maintain a minority stake in Worldpay.

Overall, revenue was up 2% year over year at FIS on an organic basis. The Worldpay segment saw 1% growth. While this materially lags peers, the segment’s growth rate was roughly in line with what we’ve seen from Worldpay over the past two quarters, suggesting the business is stable. The banking segment saw 2% growth, which is modestly below our long-term expectations, but we are also seeing similarly weak growth from peers right now. Finally, the capital markets segment remains the main driver of growth, with 7% growth year over year in the quarter.

FIS’ adjusted EBITDA margins declined to 41.4% in the second quarter from 43.0% last year. Issues within the Worldpay business remain a drag on margins, and we think a decline in deconversion fees is weighing on margins in the banking segment. Following the company’s decision to sell a majority stake in Worldpay, FIS provided an update on its cost-savings program, which will now apply only to the businesses remaining with the firm, with FIS’ revised target for total savings exiting 2024 at $1 billion, down from $1.25 billion previously.

On a separate note, during the quarter, FIS took a $6.8 billion goodwill impairment charge related to the proposed sale of a majority stake in Worldpay.