Worldpay Acquisition And Divestiture Will Refine Commerce Focus

Key Takeaways

• Strategic acquisitions and divestitures aim to enhance focus and scale, positively impacting future revenue and earnings growth.
  
• Cost and revenue synergies, alongside capital return plans, could improve margins, shareholder value, and earnings per share growth.
  
• Integration risks with Worldpay, divestiture impacts, macroeconomic pressures, and high competition threaten Global Payments' revenue growth and profitability.

Catalysts

Provides payment technology and software solutions for card, check, and digital-based payments in the Americas, Europe, and the Asia-Pacific.

• The acquisition of Worldpay and the divestiture of Issuer Solutions is expected to sharpen Global Payments' focus, enhance global scale, and position it as a leading commerce solutions provider, positively impacting future revenue and earnings growth.
  
• The company anticipates approximately $600 million in cost synergies through technology alignment and operational streamlining, which could lead to improved net margins and earnings.
  
• Global Payments plans to achieve at least $200 million in revenue synergies by cross-selling enhanced commerce solutions and expanding omnichannel capabilities, driving revenue growth and improving market share.
  
• The combined scale and increased investment capacity, exceeding $1 billion annually, are expected to accelerate innovation and product development, enhancing client experiences and supporting revenue growth.
  
• The focus on return on capital with expectations of returning $7 billion to shareholders from 2025 to 2027, alongside targeted debt leverage reductions, is likely to improve shareholder value and EPS growth.

Global Payments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Global Payments's revenue will grow by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.5% today to 17.2% in 3 years time.
• Analysts expect earnings to reach $1.8 billion (and earnings per share of $8.51) by about May 2028, up from $1.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.4 billion in earnings, and the most bearish expecting $1.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.5x on those 2028 earnings, up from 12.5x 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 decline by 3.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.78%, as per the Simply Wall St company report.

Global Payments Future Earnings Per Share Growth

Risks

• The proposed merger with Worldpay involves significant integration risks, particularly considering past integration challenges; this could disrupt operations and affect short-term revenue and earnings.
  
• Execution of cost and revenue synergies from the merger is critical, and failure to realize the expected $600 million in cost synergies and $200 million in revenue synergies could negatively impact net margins and overall profitability.
  
• The divestiture of the Issuer Solutions business could result in a loss of stable revenue streams that may not be entirely offset by the anticipated benefits of the Worldpay acquisition, impacting overall revenue growth.
  
• Macroeconomic conditions and possible recessions could impede consumer spending, negatively affecting transaction volumes and consequently dampening revenue growth.
  
• High competition in the merchant solutions space could pressure pricing and margins, threatening Global Payments' ability to sustain its forecasted net margins and earnings growth.

Valuation

• The analysts have a consensus price target of $101.528 for Global 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 $172.11, and the most bearish reporting a price target of just $65.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $10.7 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $79.28, the analyst price target of $101.53 is 21.9% 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.