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Fidelity National Information Services (FIS 1.20%) had a positive week as its stock price rose 13% from market close last Friday through 12:30 p.m. EST today, according to S&P Global Market Intelligence. As of 12:30 p.m. ET today, the stock was trading down 31% year to date.
By comparison, the markets were flat this week, with the Dow Jones down 0.1%, the S&P 500 up 1%, and the Nasdaq Composite up 1.7% as of 12:30 p.m. ET on Friday.
What sparked Fidelity National Information Services this week? The payment processor for financial institutions got a jolt on Tuesday after an analyst at Bernstein, in a research note, called the company a good candidate for activist involvement.
“We see value creation opportunity through divestiture of underwhelming merchant business, better company operation, better guidance management and improved earnings quality,” Bernstein analyst Harshita Rawat wrote.
The fintech has struggled since it acquired Worldpay in 2019 to bulk up its merchant acquiring business, which helps merchants process credit and debit card payments. Difficult macroeconomic conditions have slowed down growth in this business, and with more economic headwinds expected, it revised down its revenue and earnings guidance for the fourth quarter and full year.
The Bernstein analyst said selling off the merchant business could create at least a 30% boost for the stock.
“The FIS-Worldpay merger has been underwhelming,” Rawat wrote. “The revenue synergies have been modest at best. Worldpay has turned out to be a less attractive asset than originally perceived and has added more earnings volatility and valuation discount to an otherwise steady-ish FIS business.”
The company is in the middle of a leadership transition as Stephanie Ferris, the current president, gets ready to take over as CEO on Jan. 1. Gary Norcross, the current CEO, will become executive chairman of the board.
Ferris is already at work reshaping the company, starting with a plan to gradually cut expenses by some $500 million next year, which is expected to include thousands of layoffs.
“We are focused on permanently reshaping our cost structure through both cost-reduction and containment initiatives,” Ferris told investors in November, according to Bloomberg. “These include actions surrounding the optimization and reduction of vendor spend, the outsourcing of non-value-added activities, and reviewing and rightsizing the current workforce.”
There is quite a bit of work ahead, but the market, at least this week, thinks things are headed the right way. It’s not a buy, but it is one to watch.
Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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