2023-08-18 15:00:06 ET
Summary
- Global Payments Inc. is a payment technology and software solutions company with a market capitalization of $32 billion.
- The stock has surged nearly 15% since second quarter results were posted on August 1st.
- The company is projected to have high single-digit sales growth in FY2023 and FY2024, with expected EPS of $10.38 and $11.85 respectively.
- Can the recent rally continue? An analysis follows in the paragraphs below.
Cash rich is future poor. Back in 1913, I could have almost bought a mansion for the price of a cup of coffee today ."? Jarod Kintz, The Lewis and Clark of The Ozarks.
Today, we are putting Global Payments Inc. ( GPN ) in the spotlight for the first time since our initial article on this financial concern late in 2022. At the time, we stated that the stock seemed well positioned as a small covered call holding. The stock is about 10% higher since our first analysis, and that trade has been a profitable one. The company reported quarterly results earlier this month, and the stock has spiked up recently. We update our analysis on Global Payments Inc. below.
Company Overview:
Global Payments Inc. is headquartered in Atlanta, GA. The company is broken down into three main divisions: Merchant Solutions, Issuer Solutions, and Consumer Solutions. Merchant Services make up just over two-thirds of sales and Issuer Solutions which includes B2B which makes up the bulk of the rest.
Global Payments, Inc. provides payment technology and software solutions for card, check, and digital-based payments. The stock currently trades around $125.00 a share and sports an approximate market capitalization of $32 billion.
The company significantly expanded its global footprint when it acquired EVO Payments (EVOP) in the summer of last year for an approximate enterprise value of some $4 billion. The deal was projected to be accretive to earnings in FY2023 and produce some $125 million in synergies. The company is on track to realize $35 million in those synergies in FY2023.
Second Quarter Results:
Global Payments posted second quarter results on August 1st. The company had non-GAAP earnings of $2.62 a share, four cents a share above the consensus and compares to non-GAAP earnings of $2.36 a share in 2Q2022. Revenues rose nearly eight percent on a year-over-year basis to $2.22 billion, $30 million above expectations.
Management guided to full year growth of between seven and eight percent ($8.660 billion to $8.735 billion) and non-GAAP earnings for FY2023 of between $10.35 to $10.44 a share, representing 11% to 12% gains over FY2022. The second quarter results have triggered nearly a 15 rise in the stock since being posted.
Analyst Commentary & Balance Sheet:
The analyst community is generally positive on the stock. Since second quarter results hit, 13 analyst firms including Goldman Sachs, Barclays, and Morgan Stanley have reissued/assigned Buy/Outperform ratings on the shares. Price targets proffered range $135 to $211. Here is the commentary from Bernstein, who reiterated their Buy rating and $160 price target on GPN earlier this week.
We forecast HSD revenue growth CAGR for the merchant business (75% of revenues) over the coming years. Amidst the narrative around competition from new-entrants (which themselves are now starting to struggle), GPN's diversified vertical, channel, geo and end- market exposure are underappreciated. "
Four analyst firms, including Mizuho Securities and Evercore ISI, have maintained Hold ratings on the stock this month. Their price targets range from $123 to $129 a share.
Just over one percent of the outstanding float in the shares is currently held short. One insider has sold just over $400,000 worth of shares via two transactions (One in February, the other in June). That has been the only insider activity in the shares so far in 2023. Famed billionaire hedge fund manager David Einhorn exited completely from his stake in Global Payments as of the end of the second quarter, according to a recent 13F filing .
The company's net leverage was 3.7X as of the end of the second quarter, an increase from the same period last year due to the EVO Payments acquisition. Global Payments has adjusted free cash flow of $543 million in the quarter, which it plans to use to continue to reduce net leverage to near three times over the next few quarters. 85% of the company's debt is of the fixed variety and had a weighted average interest rate of 3.9% at the end of the quarter. Global Payments has both a revolving credit facility and a $2 billion commercial paper program. Net interest expense is expected to be approximately $550 million in FY2023.
Verdict:
The company made $9.32 a share in profits in FY2022 on $9.72 billion of sales. The current analyst firm consensus has sales rising in the high single digits both in FY2023 and FY2024, which EPS respectfully of $10.38 a share and $11.85.
The stock trades at approximately 12 times forward earnings and pays an approximate one and a quarter percent dividend payout as well. Global Payments recently installed a new CEO and should continue steady revenue growth. The company was the target of some activist speculation earlier this year as well.
Global Payments Inc. seems like a well-run firm, but the stock seems fairly valued after its recent run, especially given my view that the economy is heading into recession by the first half of 2024. Now if the shares got closer to the $100 level where they seem to have a technical floor, I would start to accumulate again a position in GPN.
Cash is King. Information is his twin ."? Sotero M Lopez II.
For further details see:
Global Payments: Good Company, Fairly Valued