Integration Of Sinqia And Nubity's Cloud Services Will Drive Future Success

Key Takeaways

• Successful integration of Sinqia and growth in Latin America promise future revenue and earnings boost through organic growth and business wins.
  
• Emphasis on cost efficiency, organic revenue, and smart capital allocation suggests potential increased profitability and net margin enhancement.
  
• A decline in economic activity, client attrition, currency headwinds, and discounts to large clients pose risks to EVERTEC's revenue and earnings growth.

Catalysts

Engages in transaction processing business and financial technology in Latin America, Puerto Rico, and the Caribbean.

• EVERTEC successfully integrated Sinqia, the largest acquisition in the company's history, and began to see growth reacceleration, promising to positively impact future revenue and earnings.
  
• The company developed a robust business pipeline in Latin America, converting opportunities into important business wins, which is expected to contribute to organic revenue growth and earnings starting mainly in 2026.
  
• EVERTEC initiated cost efficiency measures that resulted in margins exceeding expectations for 2024, which is likely to continue enhancing net margins and overall profitability in the future.
  
• The company's focus on organic revenue growth, margin optimization, and smart capital allocation, such as additional tuck-in deals, indicates a potential for future earnings growth and higher net margins.
  
• Plans to leverage new technologies, such as the cloud services offered by Nubity and cross-sell opportunities across regions including Puerto Rico, are expected to improve service offerings, contributing to revenue growth and potentially better margins.

EVERTEC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EVERTEC's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.3% today to 18.4% in 3 years time.
• Analysts expect earnings to reach $183.1 million (and earnings per share of $2.85) by about March 2028, up from $112.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $230.5 million in earnings, and the most bearish expecting $135.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, down from 20.8x today. This future PE is lower than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 1.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.82%, as per the Simply Wall St company report.

EVERTEC Future Earnings Per Share Growth

Risks

• The economic environment in Puerto Rico remains stable, but with a slight decrease in economic activity index, any further decline could negatively impact future revenues from this region.
  
• The impact of the 10% discount on services to Popular starting in October 2025 could lead to reduced revenues and lower adjusted EBITDA going forward.
  
• The Sinqia acquisition, although showing signs of growth, experienced deceleration and requires significant optimization efforts; any failure to further accelerate growth in Brazil might impact revenue and earnings projections.
  
• Client attrition, particularly from major customers like Mercado Libre in the Latin American segment, could lead to reduced transaction volumes and adversely affect overall revenue growth.
  
• Foreign currency headwinds, particularly due to the strengthening of the U.S. dollar against LatAm currencies, are expected to impact revenue growth and could result in lower-than-anticipated financial performance.

Valuation

• The analysts have a consensus price target of $36.4 for EVERTEC 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 $42.0, and the most bearish reporting a price target of just $30.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $994.9 million, earnings will come to $183.1 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 7.8%.
• Given the current share price of $36.88, the analyst price target of $36.4 is 1.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.