Investors unhappy with FIS outlook

By: 
Nov. 10, 2015

Fidelity National Information Services Inc., or FIS, reported adjusted third-quarter earnings rose by 10 cents to 90 cents a share.

However, investors didn’t like what they heard from the Jacksonville-based company in last Monday’s conference call with analysts.

FIS officials said they expect earnings for the full year to be lower than their previous forecast, in part because of costs associated with its pending acquisition of SunGard Data Systems Inc.

FIS, which provides technology services for banks, also said soft demand for some of its services is impacting revenue growth.

FIS’ stock dropped $9.03 to $64.47 last Monday after the report. The 12.3 percent drop made it the fourth-worst performing stock on the New York Stock Exchange that day.

The general consensus among analysts seemed to be that, while the earnings report raised issues, the big drop in the stock was probably an overreaction.

“We understand the investment community’s angst on FIS given multiple EPS/revenue guide downs throughout 2015, growth trends that are pretty similar to the 2009 levels (slowest industry growth in multiple decades), and a big pending acquisition that some view as plugging a hole,” Robert W. Baird analyst David Koning said in a research note.

However, Koning sees the risk/reward for FIS’ stock as “pretty compelling,” and he maintained an “outperform” rating on the stock and an $85 price target.

Avondale Partners analyst Peter Heckmann maintained his “market outperform” rating with an $80 target.

“Overall, we view commentary about weaker demand trends as incrementally disappointing but we do not believe the intermediate and longer-term story is off track,” Heckmann said in his research note.

SunTrust Robinson Humphrey analyst Andrew Jeffrey reiterated his “buy” rating but lowered his price target from $85 to $80.

He said some investors may be questioning the rationale behind FIS’ planned acquisition of SunGard, another company that provides financial technology services.

“We remain confident that the combined entity can accelerate EBITDA (earnings before interest, taxes, depreciation and amortization) and revenue growth. FIS is clearly now in a ‘show me’ situation, however,” Jeffrey said in his report.

J.P. Morgan analyst Tien-tsin Huang is more cautious with a neutral rating and a $70 price target for FIS, but he also indicated the market may have overreacted.

“The miss is an unfriendly reminder that FIS’s higher mix of short-term project work and emerging markets can create higher volatility in short-term results and consequently drive a higher stock beta versus peers,” Huang said. The “beta” is a measure of a stock’s risk.

“That said, the reaction seems overdone, causing us to be incrementally more positive on the shares, recognizing the narrative on the stock will quickly shift to deal execution with SunGard expected to close in the fourth quarter,” he said.

SunGard earnings rise

During the conference call, FIS Chief Executive Gary Norcross said the company has received all necessary regulatory approvals for the SunGard deal and expects to complete the acquisition the week of Nov. 30.

Norcross said the two companies have been working on integration planning and he expects the merger to be a positive for FIS’ future results.

“We are confident that our proven track record of integrating acquired assets combined with our global delivery skill and financial strength will enable us to deliver on this value creation strategy,” he said.

SunGard has been planning to expand its operations in Jacksonville, but FIS officials have not said how the merger may impact those plans.

Privately owned SunGard last week reported its third-quarter operating income increased 26 percent and its net income, helped by a tax benefit, rose from $11 million in the third quarter of 2014 to $67 million in the third quarter of 2015.

Nolan promoted to FNF president

Fidelity National Financial Inc. last week announced Co-Chief Operating Officer Mike Nolan will be promoted to president, effective Jan. 1.

Current President Brent Bickett will assume the role of executive vice president, corporate strategy, where he will focus on areas such as mergers and acquisitions.

The president’s spot is basically the third-ranking spot at Jacksonville-based Fidelity, behind CEO Raymond “Randy” Quirk and Executive Chairman Bill Foley.

Nolan has been with Fidelity’s title insurance subsidiary and its predecessor companies for more than 30 years.

In addition to his position as president of the company, he will continue to have responsibility for the Eastern operations of Fidelity National Title Group.

“Mike has played a key role in the success of our industry-leading title operations for a number of years and we look forward to his further contributions to our success as the President of FNF,” Foley said in a news release.

FIS was spun off from Fidelity National Financial in 2006.

Morrow leaves Stein Mart for Ross

Ross Stores Inc. announced Thursday that Brian Morrow is leaving as Stein Mart Inc.’s co-president and chief merchandising officer to become president and chief merchandising officer of Ross’ dd’s Discounts division.

The dd’s Discounts division is a chain of 172 fashion stores in 15 states.

Morrow was appointed as co-president of Stein Mart, along with Chief Operating Officer D. Hunt Hawkins, in April 2014. Stein Mart said Thursday it has begun a search for a new chief merchandising officer to replace Morrow.

The Thursday afternoon announcement came after Stein Mart said Thursday morning that sales dropped in October for the third straight month.

The Jacksonville-based fashion retailer said total sales for the four-week period fell 0.5 percent to $97.3 million and comparable-store sales (sales at stores open for more than one year) fell 2.5 percent.

Stein Mart had 274 stores in operation at the end of October, compared with 268 a year earlier.

For the entire third quarter ended Oct. 31, total sales fell 1 percent to $300.7 million and comparable-store sales dropped 2.3 percent.

In a news release, CEO Jay Stein said unseasonably warm weather impacted sales in the quarter.

“We continue to have a positive outlook on our important fourth quarter holiday sales which will include incremental sales from six new stores opened through the third quarter plus four more new stores opening in November,” he said.

Rayonier earnings beat forecast

Rayonier Inc. last week reported adjusted third-quarter earnings of 17 cents a share, down from 28 cents the previous year but 6 cents higher than the average forecast of analysts, according to Thomson Financial.

The Jacksonville-based timber and real estate company said earnings were better than anticipated in its real estate segment, with strong sales of rural and non-strategic timberland properties.

The timber business has been dealing with “challenging” market conditions, it said, including weak demand from China which affects Rayonier’s timberlands in the Northwest U.S. and New Zealand.

“Overall, we are pleased with our results for the quarter, particularly given the challenges that our sector faced,” CEO David Nunes said in Rayonier’s conference call with analysts.

One of Rayonier’s major real estate projects is the 285-acre East Nassau mixed-use development in Nassau County. During the conference call, Christopher Corr, senior vice president for real estate, said the project received its final major regulatory permit in September, and it will be breaking ground this month on an 85-acre sub-phase known as the Village Center.

He also said construction of a planned elementary school is scheduled to begin next spring, with the school expected to open in the fall of 2017.

“We are pleased by the interest we are receiving from developers and homebuilders,” Corr said.

Duos payment results in gain

Duos Technologies Group Inc. last week announced it agreed to pay $550,000 to settle a lawsuit, but said the payment will actually have a positive impact on its financial results.

The lawsuit, involving payments owed on a promissory note, was filed last year in Kentucky by Corky Wells Electric, according to a Securities and Exchange Commission filing.

Duos had actually accrued more than $1.4 million on its financial statements as a contingent lawsuit payment. By paying off $550,000, it will recognize a non-cash gain of $861,650 in the fourth quarter.

Duos is a Jacksonville-based company that provides intelligent security analytical technology solutions. It became public this year through a merger with an existing public company.

Publix stock price dips

Publix Super Markets Inc. last week said, based on the latest appraisal, its stock price fell from $42 as of Aug. 1 to $41.80 as of Nov. 1.

The Lakeland-based supermarket chain’s stock is made available for sale only to employees and its stock price is determined by an appraisal five times a year.

Publix said third-quarter earnings rose 7 percent to $412.3 million, or 53 cents a share. Total sales in the quarter rose 6.3 percent to $7.4 billion and comparable-store sales rose 4.2 percent.

“Unfortunately, the challenges in the stock market continue to impact our stock price,” Publix CEO Ed Crenshaw said in a news release.

St. Joe reports profit

The St. Joe Co. last week reported third-quarter earnings of $2.8 million, or 3 cents a share, reversing a loss in the third quarter of 2014. Revenue for the real estate development company rose 16 percent to $27.8 million.

A week before the earnings report, Buck Horne and Paul Puryear of Raymond James & Associates, the only analysts following St. Joe, downgraded the stock from “outperform” to “market perform.”

In their report, Horne and Puryear said St. Joe’s stock was trading at about a 9 percent premium to their estimated net asset value for the company.

“We believe a neutral rating is appropriate until we can assess further progress and potential cash flows of the new WaterSound active adult project,” they said.

The WaterSound community is a long-term development project in the Florida Panhandle. St. Joe moved its headquarters from Jacksonville to WaterSound in 2010.

mbasch@baileypub.com