FIS Prized For Its Leverage To Bank IT Investments

I was fairly lukewarm on FIS (FIS) back in May of this year, and the shares have since risen another 5% or so – keeping pace with the S&P 500 but largely sitting out the strong ongoing run in fintech names, as peers/comps like Jack Henry (JKHY), Worldpay (WP), Fiserv (FISV), and Total System Services (TSS) have shot higher as Wall Street seemingly can’t get enough of the fintech sector growth story.

As it concerns FIS, while I like the story of leveraging ongoing growth in bank IT investment, including a growing willingness to outsource as “keeping up with the Morgans” with internally-developed systems becomes prohibitively expensive, I just don’t see the growth here to support a substantially higher share price. Outsourcing among banks could perhaps inflect more strongly than I expect, or FIS could perhaps migrate a bit further down-market from its core Tier 1/Tier 2 bank focus, but this remains a stock where I understand the fundamental drivers but struggle to make more sense of the valuation and expectations.

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FIS Prized For Its Leverage To Bank IT Investments

Fidelity National Information Services Offsetting Growth With Margins

Fidelity National Information Services (FIS) has been a so-so performer since my last update on the company in August of 2017. Although the shares are up around 10% since then, slightly better than the S&P 500, the shares have lagged Fiserv (FISV) and Jack Henry (JKHY). I believe this underperformance is due at least in part to FIS's slow pace of organic growth and the challenges the company faces in accelerating that growth to a meaningful degree.

Providing banking and payments technology to banks and other financial institutions remains a good business on balance, and FIS has opportunities to drive further margin leverage and/or pursue value-additive M&A. Even so, the total return potential here looks somewhat lackluster, suggesting the shares are an okay hold but not an especially exciting buy candidate.

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Fidelity National Information Services Offsetting Growth With Margins

Fidelity National Information Services Looks Ready To Grow Again

I can't say that FIS (NYSE:FIS) (also known as Fidelity National Information Services) hasn't felt more love this year. While some growth concerns have stalled out the stock a few times in the last three years, the shares have risen more than 20% year to date, outperforming peers like Fiserv (NASDAQ:FISV) and Jack Henry (NASDAQ:JKHY) and more or less keeping pace with First Data (NYSE:FDC). 

While FIS certainly isn't as cheap as it was, the shares still hold some appeal as the company looks toward improving underlying conditions. Not only is management executing very well with its integration of Sungard, it's leveraged to expanding interest margins among its bank customers, aging IT infrastructure, and growth overseas. With the potential to drive FCF growth in the high single digits to low double-digits, FIS's share price could approach $100.

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Fidelity National Information Services Looks Ready To Grow Again