Quarter Highlights
Revenues of $2.309 billion surged 46.2% year over year but widely missed the Zacks Consensus Estimate of $2.363 billion. The company stated “The comparisons of reported results for 2016 to those in 2015 remain significantly impacted by the acquisition of SunGard, which closed on November 30, 2015, and will continue to be impacted for the remainder of 2016.”
Organic revenue growth was 3.8% in the quarter.
Segment wise, Integrated Financial Solutions revenues grew 19.1% year over year to $1.124 billion. Revenues from Global Financial Solutions surged 98.1% year over year to $1.068 billion.
Adjusted EBITDA grew 7.7% year over year to $766 million while EBITDA margin was 33.2%.
Balance Sheet & Cash Flow
Fidelity’s balance sheet remained highly leveraged at the end of the reported quarter. As of Sep 30, 2016, cash and cash equivalents were $701 million and debt outstanding was nearly $10.5 billion.
In the quarter, net cash provided by operations was $522 million and adjusted cash flow from operations was $579 million. The company’s capital expenditures were $153 million and free cash flow was $426 million.
Fidelity National paid dividends worth $84 million in the quarter.
Guidance
The company updated its guidance for 2016 revenues and earnings.
Fidelity projects organic revenue growth to be about 4.5% compared with 4% to 5% projected earlier. Adjusted earnings per share are expected to be in a range of $3.80 to $3.85 compared with $3.75 to $3.85 expected earlier.
Our Take
Fidelity holds a dominant position in the financial and payments solutions business, backed by its robust product portfolio. We believe that the company is well positioned to benefit from increasing investment in mobile banking.
The SunGard acquisition is expected to add to its strength beyond the traditional retail to institutional and wholesale financial technology and broaden its product portfolio.
Increasing consolidation in the banking sector, challenging environment for the Payments Solutions business and uncertain regulatory environment are the primary headwinds in our view. Also, intensifying competition from the likes of Fiserv FISV, Global Payments Inc. GPN and Alliance Data Systems Corp. ADS remains a concern.
Currently, Fidelity has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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