The Grandata Acquisition And Mercado Libre Collaborations May Strengthen Future Prospects

Key Takeaways

• Grandata acquisition in Latin America enhances product offerings and relationships, potentially boosting future revenues from fintech collaborations.
  
• Strategic pricing and cost efficiency, along with acquisitions, are positioned to drive revenue growth, margin expansion, and profitability improvement.
  
• EVERTEC faces revenue and margin pressures from discounts, competition, currency devaluation, and economic softness in key markets.

Catalysts

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

• The acquisition of Grandata in Latin America is expected to enhance EVERTEC's proprietary product offerings and expand relationships with significant fintech players like Mercado Libre, providing a potential boost to future revenues.
  
• EVERTEC's ongoing cost efficiency initiatives aim to offset the impact of a 10% discount on MSA services set to begin in October 2025, which should maintain or enhance net margins in the long term.
  
• The continued integration and revenue synergies from the Sinqia acquisition, including repriced contracts and a focus on modernizing platforms, are expected to lead to accelerated revenue growth and margin expansion in 2025.
  
• EVERTEC's strategic pricing initiatives in the Merchant Acquiring segment, combined with higher sales volumes and spreads, have demonstrated strength and should continue to support revenue growth and improved profitability.
  
• EVERTEC has repurchased shares and has a strong share buyback program, which is anticipated to positively impact earnings per share (EPS) over time.

EVERTEC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EVERTEC's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.2% today to 14.7% in 3 years time.
• Analysts expect earnings to reach $145.2 million (and earnings per share of $2.27) by about December 2027, up from $84.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $167.1 million in earnings, and the most bearish expecting $102.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.8x on those 2027 earnings, down from 26.1x today. This future PE is greater than the current PE for the US Diversified Financial industry at 17.8x.
• Analysts expect the number of shares outstanding to grow by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.61%, as per the Simply Wall St company report.

EVERTEC Future Earnings Per Share Growth

Risks

• EVERTEC faces headwinds from a 10% discount on certain MSA services with Popular starting in October 2025, which will impact top-line revenue and could affect margins unless cost efficiencies are achieved. This could lead to decreased revenue and net margins.
  
• Currency devaluation in Latin American countries, particularly the Brazilian real, Chilean peso, and Colombian currencies, poses a risk by negatively impacting revenue growth in the region due to foreign exchange headwinds.
  
• The macroeconomic environment in Brazil shows signs of softness, which could impact software spending and thus harm EVERTEC’s revenue growth in the Latin American market.
  
• The company anticipates client attrition as a headwind in Latin America, including significant customers like Mercado Libre, which might offset new business growth and impact revenue.
  
• Increasing competition and pricing pressures in mature markets like Puerto Rico may limit pricing power and revenue growth, ultimately affecting overall earnings and profit margins.

Valuation

• The analysts have a consensus price target of $36.0 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 $28.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $990.4 million, earnings will come to $145.2 million, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 7.6%.
• Given the current share price of $34.51, the analyst's price target of $36.0 is 4.1% higher. 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.