Expanding Globally And Innovating Tech Powers Strong Revenue Growth And Market Leadership

Key Takeaways

• Strategic acquisitions and international expansion are poised to significantly drive revenue growth through cross-selling and new market penetration.
  
• Innovations in cloud-based POS solutions and market segment diversification will enhance market share and bolster SaaS and subscription revenues.
  
• Heavy reliance on acquisitions and international expansion faces risks from integration costs, synergy challenges, and lagging global growth goals, impacting profitability and revenue.

Catalysts

Provides software and payment processing solutions solutions in the United States and internationally.

• The acquisition of Givex is expected to add approximately 130,000 premium customers and a $300 billion volume opportunity, which could enhance revenue through cross-selling payment processing alongside gift and loyalty capabilities. This can lead to increased gross revenue less network fees.
  
• The backlog of $33 billion in contracted volume from new logo wins, particularly in the hospitality sector, is a strong indicator of sustained volume and revenue growth in future quarters, setting the stage for higher revenue generation.
  
• International expansion, including operations in four new African countries and anticipated launches in new regions like Latin America and Australia, creates opportunities for revenue growth via new markets, contributing to an increase in gross revenue.
  
• The integration of SkyTab into the product line, offering cloud-based POS solutions, is positioned to expand market share in the restaurant space, which could lead to higher SaaS and subscription revenues, thus impacting net margins positively.
  
• Entering new market segments like transit systems in Europe and e-commerce capabilities addressed by the strategic merchant relationship, provides avenues to capture more customers and increase transaction volume, supporting overall revenue and earnings growth.

Shift4 Payments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shift4 Payments's revenue will grow by 25.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $408.7 million (and earnings per share of $4.17) by about November 2027, up from $106.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $506 million in earnings, and the most bearish expecting $184.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.5x on those 2027 earnings, down from 62.5x 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 3.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.06%, as per the Simply Wall St company report.

Shift4 Payments Future Earnings Per Share Growth

Risks

• Shift4's growth strategy relies heavily on acquisitions; if integration costs or synergy realization are not effectively managed, it could negatively impact net margins and earnings.
  
• The company is experiencing softening consumer spending, particularly in key verticals like restaurants and some leisure activities, which could impact future revenue growth.
  
• Shift4 acknowledges being behind on its international expansion goals, such as with European and Canadian card-present strategies, which could delay expected revenue streams and impact earnings growth.
  
• There is a significant focus on expanding capabilities in crypto payments, which could face regulatory or operational challenges, potentially affecting revenue and profit margins.
  
• The company's substantial M&A activity and strategy to achieve synergies through such deals could be risky if expected projections do not materialize, impacting both revenue and profitability.

Valuation

• The analysts have a consensus price target of $103.52 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 $120.0, and the most bearish reporting a price target of just $48.91.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.8 billion, earnings will come to $408.7 million, and it would be trading on a PE ratio of 30.5x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $99.12, the analyst's price target of $103.52 is 4.2% 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.