FIS Risk-Reward is Highly Favorable

By Sam Boughedda

In a wide-ranging note on payment technology stocks Wednesday, Goldman Sachs analysts told investors the risk-reward is highly favorable on FIS (NYSE:).

The analysts explained that while much of the conversation revolves around whether Fidelity National Information Services can keep pace with “growthier peers” in the payments space, they believe the story is “highly compelling from a value lens, and capable of delivering double-digit EPS growth beyond next year.” Nance added that they believe this is the case even with Merchant growth trailing the market and elevated investment spending levels in Banking.

They added that Goldman’s bottom-up work on revenue expectations and incremental margins by business line suggests that Fidelity National could point to the lower end of its long-term targets.

“We now see ~6-7% topline growth (incl ~8-9% in merchant) as our base case, with margin expansion in the 50-60bps range (including limited margin expansion in Banking solutions as the company continues to build out its MBP platform),” the analysts wrote.

“However, given the significant underperformance and Street numbers already sitting at the low end of FIS’s targets, we believe this is fairly well understood, and at ~$7.35 2023E EPS, we believe the risk reward is highly favorable. Our SOTP suggests ~38% upside to shares, and we believe the current valuation is effectively pricing in very little value for the merchant business. We would look over the next 2 quarters for mgmt to reset the bar, as well as deliver some incremental efficiency initiatives on the cost side as catalysts for share to re-rate,” they concluded.