Technology Modernization Will Lead To New Business Opportunities By 2025

Key Takeaways

• Strategic refocus and consolidation under Genius brand aim to drive sustainable growth through market expansion and new product launches.
  
• Operational transformation and partnerships are expected to enhance margins, earnings, and revenue through efficiency and cross-selling opportunities.
  
• Strategic realignments, currency exposure, and increased costs pose short-term risks to revenue and margins, but tech investments aim for long-term efficiencies.

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 executing a broad transformation agenda, which includes refreshing its strategy to focus on the most attractive opportunities for growth. This strategic refocus is expected to drive sustainable net revenue growth by optimizing assets and investing in high-potential market segments.
  
• The company is consolidating its products and platforms under the Genius brand, which is expected to provide significant opportunities for revenue growth through new product launches and expansions into new geographic markets in the second half of the year and beyond.
  
• The operational transformation program is projected to unlock more than $600 million of annual run rate operating income benefits by the first half of 2027, up from an initial outlook of $500 million. This operational efficiency is likely to positively impact adjusted net margins and earnings.
  
• Global Payments has continued its focus on partnership expansion with multinational enterprises and ISV partnerships, driving increased cross-selling and upselling opportunities expected to enhance revenue growth in key verticals and geographies.
  
• The completion of the technology modernization program in the Issuer Solutions segment, with cloud capabilities expecting widespread adoption by the end of 2025, positions the company to capture new business and drive additional revenue growth.

Global Payments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Global Payments's revenue will grow by 1.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.5% today to 19.4% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $9.21) by about April 2028, up from $1.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.3 billion in earnings, and the most bearish expecting $1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, up from 15.4x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 2.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.44%, as per the Simply Wall St company report.

Global Payments Future Earnings Per Share Growth

Risks

• The focus on transformation and realignment of strategies while investing in new capabilities could result in short-term disruptions, leading to potential impacts on revenue growth as the company transitions through these changes.
  
• The exposure to currency headwinds and the predicted impact of foreign exchange rates could negatively affect reported revenues and earnings, especially considering that a substantial portion of revenue comes from international markets.
  
• Divestitures and market exits aimed at streamlining operations, such as exiting certain subscale markets in Asia, could result in a loss of revenue in the short term, impacting overall revenue growth figures.
  
• Implementation of extensive technology modernization and the shift to cloud-based solutions might lead to increased upfront capital expenditures and operating costs, potentially impacting net margins until efficiencies are realized over the longer term.
  
• The ongoing share repurchase plans and capital return strategies could limit the financial flexibility needed for potential strategic investments, acquisitions, or unforeseen expenses, influencing earnings growth and return on equity.

Valuation

• The analysts have a consensus price target of $131.201 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 $194.0, 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 2028, revenues will be $10.4 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 8.4%.
• Given the current share price of $98.44, the analyst price target of $131.2 is 25.0% 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.