Fidelity National Information Services, Inc. (FIS) is down close to 15% today after moving up their earnings report to this morning from the originally scheduled date later in the month. While fourth-quarter EPS of $1.71, vs. $1.89 last year, was $0.01 better than expectations, the stock sank on weak guidance. FIS expects EPS for 2023 to be between $5.70 and $6.00, which is well below expectations for $6.57 and compares to 2022 EPS of $6.65.

In addition, I believe the stock had a negative reaction to the company’s announcement of its tax-free spinoff of its Merchant Solutions business unit as opposed to an outright sale of the business. The unit has grown a lot bigger following an ill-conceived acquisition of Worldpay for $43 billion four years ago. This unit had a goodwill impairment charge of $17.6 billion in the quarter, indicating how much FIS overpaid for the acquisition.

If there is any bright spot in all this, it was that management indicated guidance for this year was conservative and assumes there will be a recession this year. In addition, the company now believes it will achieve $1.25 billion in savings from the Enterprise Transformation program by year end 2024, which could help earnings by over $1.00 a share.

Still, fixing the core businesses will not be easy. New CEO Stephanie Ferris believes that money spent on product development and acquiring companies with new technologies as opposed to share buybacks will help. Right now, I think FIS is a “show me” story, with the Merchant Solutions business spin-off valuation producing a low PE, likely under 10, until FIS proves it can stop margin compression in what is an increasingly competitive business.

I would not sell the stock into today’s weakness. However, I am lowering the buy under price to $60 and my target to $72, with my target 12X the high end of this year’s EPS guidance.