Fidelity National Information Services could be in for a big jump going forward, according to Morgan Stanley. Analyst James Faucette upgraded the fintech stock to overweight from equal weight and upped his price target by $6 to $79. His new target implies the stock could rally 19.7% over where it closed Monday. The firm is “upgrading FIS to OW based on a greater M & A focus, likely derisked numbers, compelling valuation, and a more favorable VC backdrop,” he said in a note to clients Tuesday. “While we acknowledge [the] continuation of recent structural issues can make it difficult for stock to work nearterm, we think downside is limited.” Fidelity National Information Services advanced nearly 2% in premarket trading on Tuesday. But it’s still down 2.7% so far this year, continuing to slide after posting losses of 22.8% and 37.8% in 2021 and 2022, respectively. The company announced Monday its intention to spin off its merchant solution business. Faucette said the market has priced in “too draconian” of a multiple for the merchant business in recent years. He also liked the explanation given by management for the move, which was that it would free capital to improve merger-and-acquisition work elsewhere and thus help defend against newer entrants. The move comes as venture capital investment falls across the board, which Faucette thinks could help Fidelity National Information Services. That’s because the corporate environment softening could lead to more opportunities for acquisitions and a better ability to defend the current business from competition. Meanwhile, he said the company’s 2023 earnings guidance shows “de-risked numbers” despite coming in under Wall Street expectations. He pointed specifically to the company’s initial forecast of between $5.70 and $6 in earnings per share, which is below prior consensus estimates. Faucette said the stock’s valuation is now more compelling based on those numbers. To be sure, Faucette said it’s hard to buy into the stock’s long-term story if issues related to its merchant and banking businesses are not resolved. While he said the merchant business has struggled from prior mis-allocations of capital, banking growth could likely be impacted going forward if the economy weakens. — CNBC’s Michael Bloom contributed to this report.
