Calculated Acquisitions And Digital Innovation Fuel Financial Growth

Key Takeaways

• Expansion into digital and mobile payments, along with strategic acquisitions, aims to increase revenue streams and diversify income sources.
  
• Continued improvement in travel trends and strategic share repurchases are expected to drive revenue growth and enhance shareholder value.
  
• Euronet's financial health hinges on European travel, marketing investment returns, regulatory changes, and maintaining market share amid heightened competition.

Catalysts

Provides payment and transaction processing and distribution solutions to financial institutions, retailers, service providers, and individual consumers worldwide.

• Continued improvement in travel trends across Europe and expansion into new markets along with effective expense management are expected to further drive double-digit growth in the EFT segment, positively impacting revenue and operating margins.
  
• Strategic share repurchases aimed at improving future earnings per share, underpinned by strong free cash flow generation, indicate a direct positive impact on net earnings and shareholder value.
  
• Expansion into digital and mobile payment solutions, including increased marketing and promotional spend on digital channels in the Money Transfer segment, aiming for higher transaction volumes and customer acquisition, which should lead to revenue growth and improved net margins from scales of economy.
  
• Addition of domestic and international access fees in the EFT segment's ATM network to optimize profit margins while maintaining transaction volumes, expected to positively affect net margins by increasing the revenue per transaction.
  
• Investments in the Ren technology platform and strategic acquisitions like Infinitium to enhance Euronet’s offerings in online payment gateway solutions, potentially increasing revenue streams and diversifying income sources, thereby impacting overall net earnings positively.

Assumptions

• Analysts are assuming Euronet Worldwide's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.4% today to 9.6% in 3 years time.
• Analysts expect earnings to reach $456.1 million (and earnings per share of $8.88) by about September 2027, up from $282.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.7x on those 2027 earnings, down from 15.8x today. This future PE is lower than the current PE for the US Diversified Financial industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 9.56% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.62%, as per the Simply Wall St company report.

Risks

• The reliance on tourism in Europe for EFT segment revenue may pose a risk if there's an unexpected downturn in European travel, potentially affecting revenue projections.
  
• Fluctuations in promotional activity timing within the epay segment can lead to uneven quarterly results, impacting predictability and stability of revenue.
  
• In the Money Transfer segment, the significant investment in marketing and promotional campaigns to drive future growth presents a financial risk if the return on these investments does not meet expectations, impacting net margins.
  
• Increased competition and market consolidation in the Money Transfer industry could pressure revenue growth and margins if Euronet is unable to maintain its market share or if transaction fees are pressured.
  
• Exposure to regulatory changes, particularly regarding ATM surcharging (access fees) and interchange rates in various markets, could impact EFT segment profitability and revenue if regulations shift unfavorably.

Valuation

• The analysts have a consensus price target of $130.0 for Euronet Worldwide based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $145.0, and the most bearish reporting a price target of just $114.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.8 billion, earnings will come to $456.1 million, and it would be trading on a PE ratio of 11.7x, assuming you use a discount rate of 7.6%.
• Given the current share price of $99.78, the analyst's price target of $130.0 is 23.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.