Global Payments (NYSE:GPN) stock made it back to its pre-Covid prices by the end of 2020. But so far in 2021? Shares in the payment processor have experienced a nearly 27% slide.
Some may see this a great “buy the dip” opportunity, especially given analyst projections of 27.2% earnings growth this year, and 17% earnings growth in 2022. However, there’s a key hurdle that may limit its ability to bounce back toward its 52-week high of $220.81 per share, or nearly 40% above the $158.01 it trades for today.
That would be the perception that it’s an “old school” payments company, losing out to more fintech-focused names like Square (SQ). As seen from valuations for other legacy payment processing companies (more below), investors for now are hesitant to give them price-to-earnings, or P/E, multiples above 20x.
However, if the company can change this perception, and further convey that it’s adapting to the future of payments? A move back in the right direction could happen in the next year. Because of this, I am bullish on the stock. Despite the current sentiment around it, the details tell a more promising story. (See Global Payments stock charts on TipRanks)
GPN Stock and its Continued Pullback
Global Payments may have crushed estimates in its most recent quarterly results. Far from reversing its recent stock price slide, its declines have instead accelerated.
Since earnings were announced on August 2, GPN stock has been down about 18.6%. Why such a big drop lower, despite the solid results? As BMO Capital analyst James Fortheringham discussed in his post-earnings upgrade of shares, this move was an overreaction to the company’s cautious guidance, due to uncertainty related to COVID-19’s Delta variant.
This is on top of existing concerns that fintech names, Square in particular, will continue to gain dominance in the financial services sector, at the expense of “old school” providers like this one. This perception is what has pushed Global Payments shares to their current valuation. As this continues, it will be difficult for the stock to move much higher.
Nevertheless, taking a closer look at its recent strategic moves, this perception may change. Depending on the success of its recent acquisitions and initiatives, it may be able to shake off its reputation, giving the market reason to assign it a higher forward multiple.
How Global Payments could Boost its Valuation
As mentioned above, investors for now may not be willing to value GPN stock at forward valuation of between 17-18x, where it’s currently at today. This is in line with the forward valuations of Fidelity National Information Services (FIS) and Fiserv (NASDAQ:FISV).
Instead, what could change this is increased appreciation of Global Payments’ moves to become, more or less, a fintech company. It's already started to demonstrate this, with recent acquisitions of digital-first payment companies like Zego.
Besides for boosting its fintech bona fides through M&A (mergers and acquisitions), the payment company continues to enhance its technological capabilities. This should enable it to remain competitive, as e-commerce and omnichannel become larger segments of the payments market.
Once investors realize it’s far from getting fully “disrupted” by companies like Square? Shares will again start moving in the right direction.
What Analysts are Saying About GPN Stock
According to TipRanks, GPN stock has a consensus rating of Strong Buy. Out of 17 analyst ratings, 15 rate it a Buy, 2 analysts rate it a Hold, and 0 analysts rate it a Sell.
As for price targets, the average Global Payments price target today is $227.69 per share, implying around 44.1% in upside from today’s prices. Analyst price targets range from a low of $180 per share, to a high of $252 per share.
Bottom Line: Bullish but Cautious on Global Payments Stock
I may believe that shares have upside potential. Yet I’ll concede it will take time for it to fully move back to its past high above $220 per share. At that level, the stock would trade for 27x this year’s earnings. Although cheaper than Square’s triple digit forward P/E ratio, this company still needs to fully prove it can thrive in a less “old school” payments industry landscape.
Future moves may be gradual. Yet, as it has plenty in play to prove its skeptics wrong going forward, GPN stock appears to be a solid contrarian opportunity.
Disclosure: At the time of publication, Thomas Niel did not have a position in any of the securities mentioned in this article.
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