Financial Services Stocks

Fidelity National Information Services Valuation – July 2016 $FIS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Fidelity National Information Services (FIS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Fidelity National Information Services, Inc. (FIS) is a financial services technology company. The Company offers a range of solutions in retail and enterprise banking, payments, capital markets, asset and wealth management, risk and compliance, treasury and insurance, as well as providing financial consulting and outsourcing services. The Company operates through three segments: Integrated Financial Solutions (IFS), Global Financial Solutions (GFS) and Corporate and Other. The Integrated Financial Solutions segment is focused on serving the North American regional and community bank market for transaction and account processing, payment solutions, channel solutions, digital channels, risk and compliance solutions, and services. The Global Financial Solutions segment is focused on serving the largest financial institutions around the globe with banking and payments solutions, as well as consulting and transformation services.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FIS – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $24,287,942,548 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.09 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 87.98% Pass
6. Moderate PEmg Ratio PEmg < 20 28.41 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.60 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.09 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 34.31 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

FIS value chart July 2016

EPSmg $2.63
MG Growth Estimate 15.00%
MG Value $101.31
Opinion Undervalued
MG Grade D+
MG Value based on 3% Growth $38.15
MG Value based on 0% Growth $22.37
Market Implied Growth Rate 9.96%
Current Price $74.76
% of Intrinsic Value 73.80%

Fidelity National Information Services does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.29 in 2012 to an estimated $2.63 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.96% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Fidelity National Information Services scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

FIS charts July 2016

Net Current Asset Value (NCAV) -$41.00
Graham Number $49.38
PEmg 28.41
Current Ratio 1.09
PB Ratio 2.60
Current Dividend $1.04
Dividend Yield 1.39%
Number of Consecutive Years of Dividend Growth 5

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Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $3,629,000,000
Total Current Liabilities $3,322,000,000
Long-Term Debt $10,533,000,000
Total Assets $26,430,000,000
Intangible Assets $21,571,000,000
Total Liabilities $17,037,000,000
Shares Outstanding (Diluted Average) 327,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.75
Dec2015 $2.19
Dec2014 $2.35
Dec2013 $1.68
Dec2012 $1.55
Dec2011 $1.53
Dec2010 $1.15
Dec2009 $0.44
Dec2008 $1.11
Dec2007 $2.86
Dec2006 $1.37
Dec2005 $1.53
Dec2004 $1.75
Dec2003 $1.40
Dec2002 $1.30
Dec2001 $1.26
Dec2000 $1.30
Dec1999 $1.07
Dec1998 $0.85

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.63
Dec2015 $2.00
Dec2014 $1.82
Dec2013 $1.46
Dec2012 $1.29
Dec2011 $1.24
Dec2010 $1.20
Dec2009 $1.30
Dec2008 $1.73
Dec2007 $1.95
Dec2006 $1.49
Dec2005 $1.51
Dec2004 $1.47
Dec2003 $1.31
Dec2002 $1.23
Dec2001 $1.09
Dec2000 $0.89

Recommended Reading:

Other ModernGraham posts about the company

47 Companies in the Spotlight This Week – 5/16/15
Fidelity National Information Services Inc. Annual Valuation – 2015 $FIS
40 Companies in the Spotlight This Week – 2/21/15
Fidelity National Information Services Quarterly Valuation – February 2015 $FIS
30 Companies in the Spotlight This Week – 11/15/14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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