Zacks Analyst Blog Highlights: Cisco Systems, Fidelity National Information Services, Fiserv, Accenture and Alliance Data Systems

News provided by

Feb 10, 2011, 09:55 ET

CHICAGO, Feb. 10, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Cisco Systems (Nasdaq: CSCO), Fidelity National Information Services Inc. (NYSE: FIS), Fiserv Inc. (Nasdaq: FISV), Accenture Plc (NYSE: ACN) and Alliance Data Systems (NYSE: ADS).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579

Here are highlights from Wednesday's Analyst Blog:

Cisco Misses, Gets Crushed in After-Market

For the second quarter in a row, Cisco Systems (Nasdaq: CSCO) has posted slightly disappointing earnings numbers. Following cautious optimism before the earnings report after the bell, Cisco posted fiscal 2nd quarter 2011 GAAP earnings of 27 cents per share, below the Zacks Consensus Estimate of 30 cents per share.

Revenues were slightly higher than the Zacks consensus: $10.4 billion in the quarter from the expected $10.3 billion. Net revenues reached $1.52 billion in the quarter, down from $1.85 billion in the year-ago quarter.

Shares ticked up 5 cents (0.22%) during regular trading hours Wednesday, but have plummeted since earnings were reported. CSCO shares are currently down roughly $2 -- about 9% -- in after-hours trading. After a marginal miss in Cisco's fiscal 1st quarter 2011, after-market traders punished CSCO stock as well -- and further put downward pressure after the company posted weak guidance going forward.

In the past week, 3 of 15 analysts covering Cisco had upwardly revised estimates for both the fiscal 2nd quarter and full fiscal year. The price of CSCO shares had also been climbing gradually through the quarter following the big post-guidance hit after fiscal 1st quarter earnings were reported. Cisco shares were down 9.5% over the past quarter, and that was before the crushing $2 drop per share in the after-market today.

FIS Beats on Strong Revenue

Fidelity National Information Services Inc. (NYSE: FIS) reported fourth quarter 2010 earnings of 64 cents that beat the Zacks Consensus Estimate of 60 cents. Strong revenue growth and higher cost savings drove the results.

Operating Performance

Earnings on a non-GAAP basis from continuing operations increased 42.2% year over year to 64 cents per share from 45 cents reported in the prior-year quarter. Adjusted net earnings from continuing operations totaled $196.9 million compared with $168.9 million in the year-ago quarter.

Gross profit increased 13.6% year over year to $504.5 million. Gross margin was 36.1% compared with 34.2% reported in the prior-year quarter.

Operating income was $350.2 million, up 16.7% year over year. Operating margin was 25.1% compared with 23.1% in the prior-year quarter.

In the fourth quarter of 2010, EBITDA on an adjusted basis increased 14.4% year over year to $444.6 million, primarily driven by higher cost savings. As a result, EBITDA margin improved 190 basis points (bps) from the prior-year quarter to 31.8%.

The quarter results include operations from Metavante Technologies, which Fidelity acquired on October 1, 2009. For comparison, it is assumed that the merger was completed on January 1, 2009 and the year-ago quarter of 2009 was adjusted accordingly.

Revenues

Revenues on a non-GAAP basis were $1.4 billion, up 7.6% year over year in the fourth quarter. Revenue increased 6.1% organically, primarily driven by strong results from Financial Solutions and International Solutions.

Segment Results

Financial Solutions revenues rose 11.3% year over year to $503.5 million, boosted by growth in professional services, increased processing revenues and the acquisition of Capco. EBITDA was $219.4 million, up 11.0% year over year, but the margin declined 10 bps to 43.6%.

Payment Solutions revenues of $600.6 million in the fourth quarter were down 0.2% year over year, affected by a lower item processing and retail check activity that fully offset growth in electronic payment solutions. EBITDA was up 9.5% year over year to $239.8 million, and EBITDA margin improved 340 bps to 38.2%.

International Solutions revenues totaled $268.2 million, up 25.0% year over year. The results were driven by higher volumes from its Brazil card processing operation, growth in professional services, higher license revenue and the acquisition of Capco. EBITDA increased 25.3% year over year to $81.3 million, while EBITDA margin was flat at 30.3% in the quarter.

Liquidity

As of December 31, 2010, cash and cash equivalents were $338.0 million compared with $389.4 million as of September 30, 2010.

Fidelity's balance sheet is highly levered. Long-term debt (including the current potion) at quarter end was $5.19 billion compared with $5.10 billion in the previous quarter.

Capital expenditures in the fourth quarter totaled $86.7 million compared with $93.1 million in the previous quarter.

The company generated $308.3 million in adjusted cash from operations versus $313.5 million in the previous quarter. Free cash flow (on an adjusted basis) increased to $221.6 million from $220.4 million in the previous quarter.

2010 Results

Earnings on a non-GAAP basis increased 22.4% year over year to $2.02 per share, surpassing the Zacks Consensus Estimate of $1.98.

In fiscal 2010, revenue increased 4.2% year over year (3.2% organically) to $5.20 billion. This growth was primarily driven by strong results from International Solutions (up 12.5% year over year) and Financial Solutions (up 7.0% year over year), which fully offset the weakness in Payment Solutions (down 0.3% year over year).

EBITDA on a pro forma basis increased 13.9% year over year to $1.6 billion from $1.4 billion in the prior year, primarily due to cost savings. The adjusted EBITDA margin expanded 270 bps to 31.3% compared with 28.6% in 2009.

At the end of fiscal 2010, cost savings exceeded $300 million, resulting in the attainment of the planned $212 million out of the $260 million of EBITDA reduction.

Capital expenditures in the fiscal 2010 totaled $314.0 million compared with $212.5 million in the previous year.

The company generated $1.10 billion in adjusted cash from operations versus $820.0 million in the previous quarter. Free cash flow (on an adjusted basis) increased to $790.8 million from $607.5 million in the previous quarter.

Guidance

Fidelity projects adjusted earnings per share from continuing operations of $2.24 to $2.34 for fiscal 2011, up 11.0% to 16.0%, compared with $2.02 in fiscal 2010. Currently, the Zacks Consensus Estimate is pegged at $2.32, roughly in line with the high end of the guidance.

Revenue is expected to grow 9.0% to 11.0% (4.0% to 6.0% organically) for fiscal 2011. We believe Fidelity's increasing penetration into emerging markets such as Brazil and China will drive organic revenue growth over the long term.

EBITDA is projected to increase 7.0% to 9.0% and free cash flow is expected to approximate the adjusted net earnings in 2011. Fidelity expects $48.0 million of cost savings in fiscal 2011.

Acquisitions

In December, 2010, Fidelity completed the acquisition of Capco. The acquisition was funded by a combination of overseas cash and the company's revolving credit facility. The estimated purchase price is approximately $300 million plus some earn-out based on the performance of the business over the next five years.

Most recently, Fidelity announced the acquisition of GIFTS Software, Inc., a single-source provider of integrated funds transfer, Web-based cash management systems and anti-money laundering (AML) solutions. The terms of the deal were not disclosed.

Our Take

We maintain our Neutral rating on a long-term basis (for the next 6 to 12 months), primarily due to an increasing debt and intense competition from Fiserv Inc. (Nasdaq: FISV), Accenture Plc (NYSE: ACN) and Alliance Data Systems (NYSE: ADS).

Increasing consolidation in the banking sector, challenging environment for Payments Solutions business and uncertain regulatory environment are the primary business headwinds in our view. However, continued market share gains, global expansion, a strong product portfolio and cost saving synergies will drive earnings growth going forward.

The first quarter is seasonally weak for the company; hence we remain cautious on a near-term basis.

Currently, Fidelity has a Zacks #3 Rank, which implies a short-term Neutral rating (for the next 1-3 months).

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5514.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5516

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment

Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.