Global Payments (GPN) Growing On Buyouts, Headwinds Prevail

On May 23, 2017, we initiated coverage on Global Payments Inc. (NYSE:GPN) – a leading worldwide provider of payment technology services delivering innovative solutions.

Year to date, the company’s shares have gained 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.

Following the company’s strong first-quarter earnings and progress with Heartland integration, the guidance for 2017 was raised. The company now expects adjusted net revenue in the range of $3.38–$3.46 billion, reflecting growth of 19–22% over 2016. The company projects adjusted operating margin expansion by as much as 110 basis points (bps). Adjusted earnings per share are now expected in the range of $3.78–$3.95, pointing at 19–24% growth over 2016.

The company has kept its inorganic growth on track with a number of acquisitions. In Apr 2016, the company completed its merger with Heartland in a $4.4 billion transaction. The merger significantly expanded Global Payments’ small and medium-sized enterprise distribution, merchant base and vertical reach in the United States. It also acquired eWay in the same year. In Jun 2015, the company acquired all the assets of FIS Gaming Business to expand its direct distribution and service offerings in the gaming industry. In Mar 2015, the company acquired Pay and Shop Limited to provide omni-channel solutions that combine gateway services, payment service provisioning and merchant acquiring across Europe. Its other acquisitions include Ezidebit and PayPros in 2014.

The company nevertheless has incurred significant debt to fund the Heartland acquisition. Long-term debt increased to $4.52 billion in 2016 from $1.74 billion in 2015. This also led to an increase in interest expenses which were $67.9 million, $39.9 million and $37.5 million in the years ended May 31, 2016, 2015 and 2014, respectively.

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 Total System Services Inc. (NYSE:TSS) , Vantiv, Inc. (NYSE:V) and Visa Inc. (NYSE:V) . 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.

Total System Fiserv (NASDAQ:FISV) beat estimates in three of the last four reported quarters, with an average positive surprise of 3.6%.

Vantiv beat estimates in three of the last four reported quarters, with an average positive surprise of 3.5%.

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

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