Global Payments' Inorganic Growth On Track, High Debt Hurts

Global Payments Inc. (NYSE:GPN) , a leading provider of merchant acquiring and payment technology services, is riding high on inorganic growth. A number of successfully closed acquisitions in recent years have accrued to its top line.
Year to date, the company’s shares have added 32.2%, significantly outpacing the 13.5% gain by the Zacks categorized Business Service industry. The outperformance reflects the company’s strong growth, efforts to deleverage its balance sheet and value accretion from the acquisitions made over the past three years.

Moreover, the Zacks Consensus Estimate for Global Payments’ 2017 earnings has moved up 1.4% to $3.73 per share over the last 60 days.

A significant milestone for Global Payments’ was its acquisition of Heartland Payments Systems in 2016 for nearly $4.4 billion. The deal significantly expanded the company’s small and medium-sized enterprise distribution, merchant base and vertical reach in the United States.

Moreover, Heartland's capabilities in direct sales and technology-led distribution are complementary to Global Payments' expertise in 60 vertical markets with 2,000 technology partners. The combination leverages Global Payments' scalable, worldwide infrastructure, and drives substantial technological and operational synergies.

Recently, the company upped its outlook for 2017 to account for the progress on Heartland integration and strong first-quarter earnings. It now expects adjusted net revenue in range of $3.38–$3.46 billion, reflecting growth of 19–22% over 2016.

Also in 2016, the company closed a small buyout of eWay, a payment gateway and e-commerce technology company in Australia.

Global Payments’ has also been able to expand its direct distribution and service offerings in the gaming industry by purchasing the assets of FIS Gaming Business in 2015. Its other acquisitions include – Pay and Shop Limited, Ezidebit and PayPros.

Though these acquisitions have expedited growth for Global Payments, the company shoulders a significant debt undertaken to fund the Heartland acquisition. This took its long-term debt to $4.52 billion in 2016 from $1.74 billion in 2015. This also led to an increase in interest expenses that put pressure on margins.

Global Payments also remains exposed to currency volatility, since it derives nearly 30% of its revenues from international operations, which include Europe and the Asia Pacific.

Global Payments carries a Zacks Rank #3 (Hold). Some better-ranked players in the same segment are Alliance Data Systems Corp. (NYSE:ADS) , Visa Inc. (NYSE:V) and Qiwi plc (NASDAQ:QIWI) . Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alliance Data beat estimates in two of the last four quarters, with an average positive surprise of 2.15%.

Qiwi beat estimates in three of the last four quarters, with an average positive surprise of 23.6%.

Visa beat estimates in each of the last four quarters, with an average positive surprise of 7.24%.

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