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Earnings Results: FIS wins praise for ‘transparency’ even as merchant business comes up a bit short

Shares of Fidelity National Information Services Inc. are gaining some ground Thursday after the company’s heightened disclosures about its merchant business helped ease concerns about competitive pressures and outweighed a slight miss on that revenue item, in the view of analysts.

The stock
FIS,
+1.12%

is up 1.1% in midday trading Thursday. It fell as much as 3.1% early in the session but had gained as much as 7.9% later in the morning.

The company generated third-quarter net income of $158 million, or 26 cents a share, up from $20 million, or 3 cents a share, in the year-earlier quarter. On an adjusted basis, FIS earned $1.73 a share, up from $1.42 a share a year prior and above the FactSet consensus, which called for $1.68 a share.

Revenue increased to $3.51 billion from $3.20 billion, while analysts had been looking for $3.52 billion.

The company posted $1.16 billion in merchant-solutions revenue, $1.61 billion in banking-solutions revenue, and $654 million in capital-markets-solutions revenue.

“Overall, the acceleration of merchant growth vs. 2019 from +3% in 1Q21 to +9% in 2Q21 to +16% in 3Q21 should be well-received,” Mizuho analyst Dan Dolev wrote.

Still, he acknowledged that the merchant performance would be the “key debate” coming out of FIS’s results.

Recent results from FIS’s merchant-acquiring peers Fiserv Inc.
FISV,
-0.27%

and Global Payments Inc.
GPN,
+0.10%

were accompanied by sharp stock-market declines for those names that some analysts viewed as exaggerated and a partial reflection of fears that the trio could be disrupted by fintech upstarts.

Given this “generally weak sentiment that can’t handle any small controversies,” Baird analyst David Koning wondered if investors might key in on items from FIS’s report such as the performance of the company’s merchant business relative to Visa Inc.
V,
+0.80%

and Mastercard Inc.
MA,
+1.52%

as well as the small shortfall in merchant revenue versus the consensus view. (Analysts tracked by FactSet were modeling $1.18 billion in merchant revenue for the quarter, whereas FIS delivered $1.16 billion.)

Jefferies analyst Trevor Williams also tried to unpack the performance of FIS’s merchant business from an industry lens. The company’s global merchant volumes were “disclosed to be 23% above ’19 (vs. 25% above in 2Q),” he wrote. This was “in-line with Visa’s total payment volume and 4 [percentage points] below Mastercard, though V & MA both saw [quarter-over-quarter] improvement in total volumes relative to ’19 in 3Q,” Williams continued.

Wedbush analyst Moshe Katri told MarketWatch that FIS’s emphasis on new merchant additions “addresses concerns over competitive challenges.” He also highlighted the company’s late-Wednesday update on its capital-allocation plans. FIS is boosting its expected annual dividend growth rate to 20% a year from 10% a year, which the company said would lead to about $100 million of additional dividend payments during 2022.

Barclays analyst Ramsey El-Assal wrote that the company’s enhanced disclosures around its merchant business could give investors “a more factual, data-based justification for re-engaging with the stock.” The company included a quarterly breakdown of revenue, global volume, U.S. volume, and transaction growth going back to the start of 2019.

“We provide this extra level of transparency to create easy comparisons, so the shareholders can better evaluate any concerns about share loss,” Chief Financial Officer Woody Woodall said on the earnings call.

El-Assal wrote that he initially wasn’t sure “which direction the stock would go this morning given slight underperformance in Merchant, but clearly the case the company laid out – which shows the long-term opportunity for consistent double-digit growth – is assuaging investor concerns regarding competition and share loss.”

For the full year, FIS anticipates $13.9 billion to $14.0 billion in GAAP revenue and $6.50 to $6.60 in adjusted earnings per share.

FIS shares have declined 21% so far this year as Fiserv shares have dropped 11% and as Global Payments shares have lost 37%. The S&P 500
SPX,
+0.27%

is up 24% on the year.

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