SkyTab AIR Launch And International Expansion Will Unlock Cross-Sell Synergies

Key Takeaways

• Strategic acquisitions and new products enhance market position, enabling revenue growth and better margins through cross-selling and increased merchant additions.
  
• International expansion and effective integration of acquisitions are set to improve earnings sustainability and offer diversification benefits.
  
• Shift4's resource-dependent growth strategy, leadership transition, and global expansion face risks that could affect profitability and operational stability amidst uncertain economic conditions.

Catalysts

Engages in the provision of software and payment processing solutions in the United States and internationally.

• Shift4's M&A strategy continues to unlock significant synergies and new revenue opportunities through cross-selling its payment solutions to acquired companies' existing customer bases, potentially increasing net revenue and enhancing EBIT margins.
  
• The introduction and scaling of new products, like SkyTab AIR, are expected to drive further merchant additions and improve the company's competitive positioning in key markets like restaurants, impacting net margins positively.
  
• The company is witnessing strong international growth, with significant merchant additions across newly entered markets, which should contribute to revenue growth and offer diversification benefits going forward.
  
• The acquisition of Global Blue presents a substantial cross-sell opportunity, with Shift4 estimating a $500 billion volume potential, anticipated to drive revenue synergies by bundling existing services, positively affecting long-term revenue and earnings.
  
• Increased operating leverage expected as a result of growth in volumes and efficient integration of recent acquisitions should improve EBITDA margins and lead to improved earnings sustainability over time.

Shift4 Payments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shift4 Payments's revenue will grow by 17.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 7.9% in 3 years time.
• Analysts expect earnings to reach $426.1 million (and earnings per share of $4.65) by about April 2028, up from $227.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $473 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.0x on those 2028 earnings, up from 27.4x today. This future PE is greater than the current PE for the US Diversified Financial industry at 14.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.66%, as per the Simply Wall St company report.

Shift4 Payments Future Earnings Per Share Growth

Risks

• Global Blue's business relies on international travel and luxury retail spending, which may be volatile due to changing economic conditions and travel restrictions, potentially affecting future revenue stability.
  
• The company's expansion into international markets, while promising, involves substantial execution risk and resource allocation, which could challenge both current and projected earnings.
  
• Uncertain macroeconomic conditions and potential tariff impacts might not directly affect Shift4's immediate consumer spending but could lead to more modest growth or profitability under quick-changing circumstances.
  
• The CEO transition involves potential uncertainty and leadership changes, which could either distract from or delay current growth strategies and affect operational focus and net margins.
  
• Continued reliance on acquisitions for growth could strain resources, and if synergies are not effectively realized, it may impact operational efficiency and profitability margins.

Valuation

• The analysts have a consensus price target of $115.952 for Shift4 Payments 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 $154.0, and the most bearish reporting a price target of just $80.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $426.1 million, and it would be trading on a PE ratio of 37.0x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $89.86, the analyst price target of $115.95 is 22.5% 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.