Fidelity National Information Services (FIS) Quarterly Valuation – May 2014
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 5 Undervalued Companies for the Defensive Investor. 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 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 global provider of banking and payments technologies. The Company operates in four segments: Financial Solutions Group (FSG), Payment Solutions Group (PSG), International Solutions Group (ISG) and Corporate and Other Segment. The Company is engaged in payment processing and banking solutions, providing software, services and outsourcing of the technology. The Company offers financial institution core processing, card issuer and transaction processing services, including the NYCE Network, a national electronic funds transfer (EFT) network. FIS serves more than 14,000 institutions in over 100 countries. In April 2014, the Company acquired CMSI, a provider of consumer loan origination software and services.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| Recent Price | $53.75 |
| MG Value | $57.09 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $27.39 |
| Value Based on 0% Growth | $16.05 |
| Market Implied Growth Rate | 9.98% |
| Net Current Asset Value (NCAV) | -$17.54 |
| PEmg | 28.46 |
| Current Ratio | 1.58 |
| PB Ratio | 2.37 |
Balance Sheet – 3/31/2014
| Current Assets | $2,688,300,000 |
| Current Liabilities | $1,704,400,000 |
| Total Debt | $4,728,900,000 |
| Total Assets | $14,270,900,000 |
| Intangible Assets | $10,649,100,000 |
| Total Liabilities | $7,736,800,000 |
| Outstanding Shares | 287,800,000 |
Earnings Per Share
| 2014 (estimate) | $2.34 |
| 2013 | $1.67 |
| 2012 | $1.82 |
| 2011 | $1.61 |
| 2010 | $1.27 |
| 2009 | $0.42 |
| 2008 | $0.61 |
| 2007 | $2.60 |
| 2006 | $1.37 |
| 2005 | $0.82 |
| 2004 | $1.66 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $1.89 |
| 2013 | $1.56 |
| 2012 | $1.39 |
| 2011 | $1.21 |
| 2010 | $1.10 |
| 2009 | $1.06 |
Dividend History
FIS Dividend data by YCharts
Conclusion:
Fidelity National is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the low current ratio, lack of sufficient earnings growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor’s only concern is the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to other opportunities such as Visa Inc. (V) and Discover Financial Services (DFS).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.10 in 2010 to an estimated $1.89 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 9.98% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Fidelity National (FIS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in Fidelity National (FIS) or in any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from wikipedia; this article is not affiliated with the company in any manner.
