2023-05-01 14:00:13 ET
Summary
- Global Payments Inc. shares are tanking after Q1 results.
- The company is still offering reliable growth and is at value levels, especially under $100.
- Maybe market participants were looking for more, but it was a beat and raise by Global Payments Inc.
This earnings season, we have been heavily invested in reviewing as many financial company earnings reports as we can to really try and get a feel for the direction corporations see the nation and the globe moving. The higher rate environment still has not crushed growth. Employment is strong. Corporate earnings have come down, but not nearly as much as was expected. The economic data remains strong as well. Despite leading economic indicators flashing recession, so far, the markets have held up with extreme resilience.
To gauge the strength of the consumer, one area that we have been monitoring is companies that process fiscal transactions. This includes the traditional credit card companies, as well as fintechs that focus on peer to peer or business to business payments. The payment systems and networks space has gotten very competitive, but one name that we still believe offers both the combination of value and reliable growth is Global Payments Inc. ( GPN ). The company just reported Q1 earnings this morning, and while it was a strong quarter in our opinion, we liked that the guidance was raised. And yet, GPN stock is falling heavily. We think it is taking a bad beat here.
Global Payments Inc. is a quality company at a fair price. Let us discuss.
Performance in Q1 was strong
The company is really delivering. In the just-reported Q1 , GAAP revenues were $2.29 billion, rising from $2.16 billion in Q2 2022. Revenues, after being adjusted for dispositions as well as picking up the EVO payments business, as well as adjusting for currency, were up 7% year-over-year.
Overall, this revenue performance surpassed consensus estimates as well by $280 million. Expenses were reasonably managed in our opinion, and with the slight increases in revenues, we saw a solid increase year-over-year for adjusted EPS, was quite strong, growing 16% as reported, or 18% if we control for currency. They came in at $2.40, rising from $2.07 a year ago. This result handily surpassed estimates by $0.09.
Segments mixed
On the segment level, there were mixed results. Overall, the Merchant Solutions segment saw revenue of $1.46 billion, which was up from last year's $1.33 billion, adjusted. Issuer Solutions saw growth as well from last year to $490.2 million. These revenues were up from 468.3 million in Q1 2022. Finally, in the smaller Consumer Solutions segment, revenue fell to 129.2 million from $169 million a year ago. This may be causing some bearishness, but in the grand scheme of things, this was a solid quarter.
GPN Guidance was raised
The 2023 outlook now reflects all of the strategic transactions the company has made in the past few quarters. The company believes the economic outlook will be about similar to the present day conditions, which may end up proving false, but is a bullish outlook. The company now expects adjusted net revenue to be $8.63 billion to $8.74 billion, which would be growth of 7% to 8% over 2022. This is a guidance increase from revenues previously seen rising 6% to 7%. For the earnings, Global Payments Inc. sees EPS in a range of $10.32 to $10.44, or growth of 11% to 12% over 2022.
Debt burden
The one risk we see is a debt burden that is a bit large, but the cash flow numbers are strong when we look at the balance sheet. Debt at $16.5 billion is quite high, but there are strong cash flows, and the company ended the quarter with $2.1 billion in cash and equivalents. So, overall, there is some leverage here, and it is something to watch going forward, though the company constantly pays down debt, and takes on new financing as needed, such as to pick up EVO payments, and other strategic moves
Growth and value, GPN is a quality company at a fair price
This is both a slow and reliable growth stock and one that offers some interesting value . At $104 a share, we think Global Payments Inc. is a quality company at a fair price. The EV/EBITDA metrics, the price-to-cash flow, and price-to-book all look great. With $10.40 likely to be earned here per share in 2023, and at $104 a share, you are getting shares 10X FWD 2023 EPS. Common stock owners also are paid a quarterly dividend of $0.25 per share. While the annual yield is just about 1%, it is an added bonus.
Final thoughts
This selloff seems overdone. Global Payments Inc. is a quality company at a fair price that continues to have a steady growth. A 10X multiple is a fair price to pay for Global Payments Inc.
For further details see:
Global Payments: A Good Company At A Fair Price