Genius Brand Drives Global Growth And Margin Expansion Despite Economic Hurdles

Key Takeaways

• Strategic focus on core assets and international expansion are expected to drive revenue growth and improve operational efficiency.
  
• Divestiture of non-core assets and cloud modernization enhance potential for increased earnings and shareholder returns.
  
• Uncertain macroeconomic conditions and strategic divestitures may limit Global Payments' short-term revenue growth as it refocuses on its core businesses.

Catalysts

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

• Global Payments is simplifying and streamlining its business by refocusing its strategy and consolidating its POS assets under the Genius brand, enhancing growth and efficiency, and expected to increase return on invested capital, thereby impacting operating margins and revenue.
  
• The company's international expansion of POS offerings and its entry into new markets such as Germany, Mexico, and other European countries is expected to drive revenue growth through increased market share internationally.
  
• The ongoing transformation efforts, including the unification of teams and capabilities, is projected to enhance Global Payments' operational performance and expand net margins due to improved efficiency and scale.
  
• The divestiture of non-core assets like AdvancedMD helps simplify Global Payments’ operations, allowing the company to focus on high-growth potential areas, expected to positively impact earnings and accelerate capital returns to shareholders.
  
• Cloud modernization in Issuer Solutions with new product offerings and strategic renewal of top clients is anticipated to provide greater revenue stability and growth, while also offering improvements in operating margins through enhanced operational efficiencies.

Global Payments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Global Payments's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.6% today to 17.4% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $8.42) by about November 2027, up from $1.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.2 billion in earnings, and the most bearish expecting $1.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.4x on those 2027 earnings, down from 21.6x today. This future PE is greater than the current PE for the US Diversified Financial industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 3.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.

Global Payments Future Earnings Per Share Growth

Risks

• The uncertain macroeconomic environment has led to softer-than-expected volumes, particularly in commercial card transactions and related issuer businesses, which could slow down revenue and earnings growth in the near term.
  
• Economic conditions affecting consumer and commercial spending may impact the company's core payments, issuer solutions, and SMB volumes, potentially limiting revenue growth.
  
• Regulatory and compliance complexities, particularly in the healthcare sector, have prompted the sale of the AdvancedMD business, which may affect revenue and margins.
  
• The strategic divestitures, including the planned exit from certain smaller international geographies and lines of business, could lead to a reduction in total revenue in the short term as the company focuses on its core business.
  
• Delays in product and project investments by financial institution partners, given macro uncertainty, could impact revenue growth in the Issuer Solutions segment.

Valuation

• The analysts have a consensus price target of $130.03 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 $171.0, and the most bearish reporting a price target of just $92.83.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $10.9 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 19.4x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $116.07, the analyst's price target of $130.03 is 10.7% 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.