By Investing.com Staff
Shares of Fidelity National Information Services Inc (NYSE:FIS) are up 3.5% in early trading Tuesday after Bernstein analysts commented that, in their view, the company makes a good candidate for potential activist involvement.
The analysts noted that many investors are reluctant to get involved in the stock due to the post-pandemic history of negative revisions and guide-downs. However, with shares trading at just 9.7x 2023 earnings versus 14x for peer Fiserv, Inc. (NASDAQ:FISV), shares are attractively valued.
"We see value creation opportunity through divestiture of underwhelming merchant business, better company operation, better guidance management and improved earnings quality," they said.
The analysts said the FIS-Worldpay mega-merger has been "underwhelming" and a merchant divestiture can unlock at least 30% stock upside.
"We see 30%+ upside from the merchant divestiture; we assume 8x EV/EBITDA ('23) for merchant & LDD multiple for banking/capital markets businesses," they commented
The analysts added that better expectation management and improved earnings quality can restore credibility with investors.
"FIS' valuation discount vs. peers is partly attributable to earnings quality," the analysts commented. "Compared to its peers, FIS has a lot more adjustments to earnings. One-off benefits are often called out only when they become headwinds on yoy comps." They said a pair of external eyes could help restore credibility.
Further, the analysts said better operation through rationalized cost structure can improve earnings growth. The analysts note that margins are down ~200 bps year-to-date for banking & merchant. While the enterprise transformation project announced in Q3 is a start it feels hastily put together, they added.
Overall, the analysts maintained a Market-Perform rating and $70 price target on the stock.