Global Payments Rides on Buyouts & Investments in Technology

Zacks Equity Research

Global Payments Inc. GPN has been banking on acquisitions to accelerate growth. In fact, a number of buyouts made in recent years have added to its scale and size. The acquisition of Heartland Payments Systems (completed in 2016) is noteworthy. The merger significantly expanded Global Payments’ small and medium-sized enterprise distribution, merchant base, and vertical reach in the United States.

Other acquisitions, including assets of FIS Gaming Business, Pay and Shop Limited, Ezidebit, PayPros, eWay, and the communities and sports divisions of ACTIVE Network, added to the company’s overall business. Recently, it acquired AdvancedMD, a medical software firm, which will facilitate its business mix toward technology enablement. We believe that the company’s active acquisition strategy will aid it in achieving long-term growth.

Notably, the company has been on growth trajectory for quite some time. Its revenues witnessed a CAGR of 10.5% between 2008 and 2018. Considering that, the company consistently pursues acquisitions, alliances and joint ventures. These factors are likely to fuel business growth and aid the top line. Moreover, there is ever-increasing demand for electronic payment transactions, providing the company an abundant scope for growth. For 2019, it expects adjusted net revenue plus network fees to be in the range of $4.43 billion to $4.49 billion, reflecting growth of 12-13% year over year.

Further, ongoing investment in technology has led to shift of its business mix toward technology enablement, which is anticipated to represent 60% of the company’s revenues (up from 30% in 2015). It is also expected to drive a significant portion of total growth by the end of 2020, backed by balanced portfolio across owned SaaS, partnered software, and ecomm and omni-channel assets.

The company’s operating cash flows that have been increasing for the past several years is another catalyst. In 2018, the same soared 116%. The company’s operating cash flow per share — a measure which signifies financial strength — is 7.3, higher than the industry average of 5.1. Strong financial flexibility will help the company to invest in businesses, which in turn is likely to drive long-term growth.

Global Payments carries a Zacks Rank #2 (Buy). Year to date, the stock has gained nearly 30%, outperforming the industry’s growth of 19.5%. The tailwinds of the company will likely help the rally on the stock to continue in the coming quarters.

Some other top-ranked stocks include Fidelity National Information Services, Inc. FIS, Diebold Nixdorf, Incorporated DBD and Worldpay, Inc. WP. While Fidelity Information carries a Zacks Rank #1 (Strong Buy), Diebold Nixdorf and Worldpay carry a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Fidelity National and Worldpay both surpassed estimates in the trailing four quarters, recording average surprise of 2.7% and 5.1%, respectively. The Zacks Consensus Estimate for 2019 earnings for Diebold Nixdorf’s is expected to grow by 122.33% to 23 cents per share.

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