All Fidelity National Info's Catalysts Seem To Have Already Played Out

Fidelity National Information Servcs Inc FIS shares have outperformed the S&P 500 Index in the year-to-date period. Compared to the latter's 15.5 percent advance, Fidelity National Information Services shares have been up 22 percent.

The elevated valuation and a lack of any meaningful upcoming catalysts have left Wall Street firms uneasy.

The Analyst & The Rating

It's against this backdrop KeyBanc Capital Markets analyst Arvind Ramnani downgraded shares of Fidelity National from Overweight to Sector Weight. The firm has a fair value estimate of $98 for shares.

The Thesis

Fidelity National Information's approaching KeyBanc's previous price target led to the downgrade, as well as a lack of distinct catalysts and further clarity on the recent public sector and Capco divestitures could lead the consensus estimates lower, Ramnani said.

The key premise behind the firm's earlier Overweight rating was the $310 million synergies from SunGard, with the actual coming in at $325 million. The multiple of the shares have increased by two times over the past year and the 2018 earnings per share estimate has increased by 4 percent, KeyBanc said.

Given the backdrop there isn't much room for an expansion in valuation.

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Based on conversation with the company, KeyBanc lowered its 2018 revenue estimates from $ 9,267 million to $9,039 million and 2019 estimate from $9,540 million to $9,306 million. Going by the management's 2017 organic growth guidance of $8,760 million and assuming the trend to be flat in 2018, the firm said 2018 revenues could come in below the consensus estimates.

However, investors could continue to reward the shares with further multiple expansion under three scenarios, the firm added. The stable and sticky revenues, robust free cash flow generation, continued operating margin expansion and shareholder-friendly capital return program, including a dividend yield of 1.3 percent, could work in the company's favor, KeyBanc said.

That said, the firm sees a clearer path to stock appreciation in EPAM Systems Inc EPAM and DXC Technology Co CSC.

Price Action

Since the start of the third quarter, Fidelity National Information Services' shares have been up a more muted 8.62 percent, but still outperforming S&P 500's 6.56 percent advance.