Shares of Fidelity National Information Services Inc. notched their best weekly performance since the early days of the pandemic this week as analysts chimed in with upbeat views about the financial-technology name, which took a beating a month back in the wake of a disappointing earnings report.
FIS FIS, +1.20% shares rose 12.3% this week, making for their largest single-week percentage gain since the one that ended March 27, 2020, when the shares climbed 16.8%, according to Dow Jones Market Data.
Raymond James analyst John Davis wrote Wednesday that his sum-of-the-parts analysis indicates that the stock is worth $115 a share, using what he called “very conservative assumptions.” (Shares closed Friday just above $74.)
He noted that while investors seem “far too focused” on the company’s merchant segment, which represents about 30% of revenue, the segment is “also significantly misunderstood/undervalued” in his view. About 75% of it is “very healthy” while the other quarter is more levered to the investor concerns around share loss among small- and mid-sized businesses, he said.
“At the end of the day, we believe there are multiple ways to win from here,” Davis continued, writing that the stock was trading at under 10 times estimates earnings per share for 2023. In his view, either the company’s management executes strongly or the company could get broken up.
He reiterated a strong buy on the stock and an $83 price target.
Bernstein analyst Harshita Rawat commented that the company looks like “a good candidate for potential activist involvement” as “many investors are reluctant to get involved in the stock given the post-pandemic history of negative revisions & guide-downs.”
She saw opportunity in a possible divestiture of the company’s merchant business, writing that the company’s merger with Worldpay has been “underwhelming” thus far.
“We understand that the incoming CEO, who noted that the businesses belong together, would like at least a shot at driving more synergies,” she wrote. “However, management targets often tend to be optimistic & FIS already had 3+ yrs to drive revenue synergies.”
She saw other ways an activist could help as well: “There is a new CFO at the company, but we believe a pair of external eyes can help restore credibility” given perceived issues with expectation-setting.
Additionally, Rawat offered that “[b]etter operation e.g., through rationalized cost structure can improve earnings growth.” Still, she rates the stock at market perform and had a $70 price target as of Tuesday.
FIS shares suffered their worst day since 2002 in early November after the company delivered a downbeat outlook alongside its latest quarterly report, and the shares are off 32% so far this year. They’ve lagged shares of merchant-acquiring peers Fiserv Inc. FISV, +0.41% and Global Payments Inc. GPN, -0.43%, which are up 1.6% and off 24%, respectively, so far in 2022.