Fidelity National Information Services Inc. celebrated Valentine’s Day with an investor day presentation in Orlando.
Maybe it wasn’t the most romantic way to mark the occasion, but shareholders of Fidelity, or FIS, had to have warm feelings about how the day worked out. The positive messages Tuesday, combined with the late Feb. 13 announcements of solid fourth-quarter earnings and a big increase in the dividend, sent FIS’ stock up $2.04 to $31.04. The 7 percent gain was the best among all companies in the S&P 500 index on Tuesday.
At investor day, FIS said that the company’s revenue has grown by 20 percent a year since 2008 to $5.7 billion in 2011, and adjusted earnings per share grew by 15 percent a year to $2.27 last year.
Without acquisitions, FIS is projecting revenue to grow by 4 percent to 7 percent a year over the next four years, with adjusted earnings per share rising by 12 percent to 15 percent.
Analysts who attended the event said that FIS also unveiled a new basic strategy. The company, which provides technology services to financial institutions, is planning to focus more on organic growth, rather than growing by acquisitions.
“With much of its product suite complete, more attention will be given to cross selling into its existing customer base, clearly a strategy that increasingly works in this sector,” said D.A. Davidson analyst John Kraft in a research note.
Analyst Daniel Perlin of RBC Capital Markets said in his report that FIS management also talked about a “new capital allocation strategy focused on redeploying more funds back to shareholders through dividends and share repurchases.”
In addition, FIS announced Feb. 13 it was increasing the annual cash dividend from 20 cents a share to 80 cents, a huge increase. It also announced that the board of directors approved a $1 billion stock repurchase program.
Yet, after Tuesday’s jump in the stock price, Perlin was cautious about FIS.
“What to do with the stock? With a new shift in strategy to lower risk capital redeployment, focus on organic growth, core margin expansion, and likely better quality of earnings in the future, we believe the multiple for FIS will begin to expand. However, with the stock’s sharp move today, we would hold off on chasing the name as this strategy shift will not play out overnight,” Perlin said.
However, Robert W. Baird analyst David Koning noted FIS was still trading at a 5 percent discount to other S&P 500 stocks after Tuesday’s gain.
“Despite yesterday’s 7 percent move, we continue to like FIS, and view the stock as one of our best ideas,” Koning said in his research note on Wednesday.
LPS leaves investors more uncertain
While FIS was spreading good cheer last week, sister company Lender Processing Services Inc. gave investors much to mull over in its fourth-quarter report.
LPS, which was spun off from FIS, reported a fourth-quarter net loss of $21.2 million, largely because of a $78.5 million pre-tax charge ($53.1 million after taxes) related to potential costs for “legal and regulatory actions.”
LPS, which provides technology services to mortgage lenders, has been under investigation by numerous federal and state authorities for two years regarding allegations that one of its subsidiaries falsified documents for lenders to be used in foreclosure proceedings.
The company has not yet faced any financial penalties from those investigations, or from lawsuits related to the case. After a thorough review of all company operations during the fourth quarter, which included potential legal costs, LPS came up with the $78.5 million estimate to resolve all of the issues related to the foreclosure inquiries.
“I think the way to look at this is the ability to actually book this charge under our existing accounting rules is indicative of the progress we believe we’ve made during the fourth quarter,” Chief Financial Officer Thomas Schilling said during LPS’ quarterly conference call with analysts.
“We’ve made progress on several fronts to have better clarity around the scope of the document execution process. The issues that are addressed within the $78 million charge are all those items. It’s the consent order, the various state attorneys general, and some of the other investigations that are going on right now,” Schilling said.
“We’re not going to itemize them simply for obvious reasons. But we believe that we have addressed all the issues that we believe are estimatable at this time,” he said.
“We are feeling better about all of the issues around the litigation,” CEO Hugh Harris said in the conference call.
“We’ve made progress during the fourth quarter and continue to make progress. You saw on the Nevada AG suit that we did file a motion to dismiss that. On the other AGs, it’s not really appropriate at this time to go into any detail into that, but we are cooperating fully with the inquiries that we’re getting and trying to move those forward,” Harris said.
Some investors took the $78.5 million charge as a positive signal.
“While we are unsure how to handicap its accuracy, we suspect it is less than some had feared,” said Kraft of D.A. Davidson.
But Kevin McVeigh of Macquarie Capital thinks more costs lie ahead.
“While the market might be encouraged by the $78.5 million pre-tax charge for legal and regulatory expenses related to the document execution consent order, we remain cautious as we believe LPS could face additional liabilities from potential state AG lawsuits,” he said in a research note.
Darrin Peller of Barclays Capital came away from the conference call feeling that “management signaled greater comfort around legal issues” and he “considered the earnings call constructive overall.”
But Peller’s report also noted other issues that will impact LPS’ earnings this year, such as uncertainty over the volume of mortgage business in a still weak housing market.
“Overall, we are more constructive on the LPS story but would note that there may be a few quarters to move through before the market can fully begin to price in normalized earnings power, and look for further confidence in long-term business profitability over the upcoming months,” he said.
Asbury automotive earnings impress market
While FIS was the biggest gainer Tuesday in the S&P 500, Asbury Automotive Group Inc. did even better after reporting higher-than-expected fourth quarter earnings.
Asbury’s fourth-quarter adjusted earnings from continuing operations of 54 cents a share were 17 cents higher than last year and 11 cents higher than the average forecast of analysts surveyed by Thomson Financial.
That sent Asbury’s stock up $1.84 to $26.50 Tuesday, a 7.5 percent gain. But Asbury is not an S&P 500 stock.
Duluth, Ga.-based Asbury operates 79 retail auto stores, including the Coggin dealerships in the Jacksonville area.
Berkowitz still touting St. Joe
It’s been a difficult year for The St. Joe Co. since its largest shareholder, Bruce Berkowitz, pushed through a complete upheaval of the company’s management. But Berkowitz remains bullish on the real estate developer, which moved its headquarters from Jacksonville to the Florida Panhandle.
“I’m really proud of what’s going on at St. Joe,” Berkowitz said in an interview with Bloomberg News.
“The bleeding has stopped. The company is now structured for whatever the future may be in real estate and we’ll be ready to take advantage of the tailwinds that will eventually come,” said Berkowitz, who is chairman of St. Joe’s board of directors.
Berkowitz’s Fairholme Capital Management controls about 29 percent of St. Joe’s stock.
St. Joe last month announced that after a review of all its real estate projects, it is revising its strategies on the projects. The company did not give specifics but said it is taking a write-off of $325 million to $375 million on some of its properties.
Coal outlook could lower CSX earnings
Coal is big business for Jacksonville-based CSX Corp., as coal shipments accounted for nearly one-third of its 2011 revenue. So a possible decline in export coal shipments this year, due mainly to weaker demand from Europe, could lower CSX’s earnings, Dahlman Rose & Co. analyst Jason Seidl said last week.
“With such a deterioration in export coal outlook, utility coal weakness becoming slightly more pronounced in the first quarter, and natural gas prices remaining at low levels, leading to the continued displacement of coal at some utilities, we are lowering our coal volume and revenue assumptions for a number of the class I railroads,” Seidl said in a research note.
He lowered his 2012 earnings estimate for CSX by 5 cents to $1.85 a share and his 2013 estimate by 15 cents to $2 because of the coal outlook.