Global Payments Inc. GPN is well poised for growth on the back of innovative payment solutions, cost-cutting efforts and strong cash position.
The financial transaction services provider surpassed earnings estimates in each of the trailing four quarters, with an average surprise of 5.8%.
The Zacks Consensus Estimate for 2020 earnings per share has moved 0.3% north in the past 30 days. The expected long-term earnings growth rate is 20.4%, better than the industry’s average expectation of 15.6%.
Factors Driving Global Payments
This Zacks Rank #3 (Hold) company has been benefiting from constant collaborations, which reinforce its competitive edge in offering innovative payment solutions. Concurrent with second-quarter 2020 results, Global Payments announced the news of joining forces with Amazon Web Services (AWS).
The company’s innovative payment solutions and AWS’s cloud leadership abilities for issuer services are likely to accelerate Global Payments’ movement toward a connected digital world.
As Global Payments is working closely with AWS, the former’s target addressable market for issuer solutions is now anticipated to increase more than three fold.
Another notable move made by the company is the buyout of Total System Services (TSYS) last year. TSYS, best known for providing card issuer solutions to financial institutions, has enhanced the business mix of Global Payments. In fact, it continues to sign multi-year agreements with financial services provider, with deals with Wells Fargo Bank and TD Bank Group being the recent ones.
Notably, based on the TSYS merger, Global Payments still expects annual run rate revenue synergies of a minimum of $125 million.
Moreover, the company is well poised to witness higher business sales by virtue of e-commerce and omni-channel solutions. These omni-channel capabilities, in fact, can be integrated into the business of not only renowned MNCs but also SMB merchants. Also, the growing trend of customers switching over to online ordering and virtual payment solutions has led to a rise in demand for Global Payments’ solutions.
Furthermore, the company makes constant investments for upgrading the unified commerce platform, which has been using a single API for facilitating payment solutions that have higher acceptance rates worldwide. Global Payments has also enforced several cost-cutting initiatives, which have helped it to somewhat tide over the operating challenges triggered by the COVID-19 pandemic.
Notably, it has remained on track to achieve additional annualized cost savings of $400 million as a result of the pandemic.
Additionally, the cash position of Global Payments looks strong. As of Jun 30, 2020, its cash and cash equivalents increased 8.8% from the 2019-end level, which is sufficient to meet short-term debt obligations. Total debt to total equity of 33.6% at second quarter-end was lower than the industry’s 61.3%. Also, the company does not have any significant debt repayments until 2023. Free cash flow generating abilities of Global Payments have enabled it to effectively undertake reinvestments in the business.
Shares of the company have gained 7.4% over a year compared with the industry’s 6.1% rally.
However, its revenues have remained under pressure due to decline in consumer spending and closure of certain merchant customer businesses, thanks to the pandemic.
Nevertheless, we believe that Global Payments’ strong fundamentals are likely to help the stock bounce back in the days ahead.
Stocks to Consider
Some better-ranked stocks in the same space include Qiwi plc QIWI, Envestnet, Inc. ENV and Equifax Inc. EFX, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Qiwi, Envestnet and Equifax have a trailing four-quarter earnings surprise of 24.86%, 14.28% and 9.03%, on average, respectively.
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