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Will Merger Synergies Aid Global Payments (GPN) Q4 Earnings?

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Global Payments Inc. (GPN - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 15. We expect the company to report higher revenues in the fourth quarter a trend seen in the first nine months of 2017 (up 21%), driven by the synergies from the merger with Heartland Payments.

The company’s consistent acquisitions, alliances and joint ventures fuel business growth and add to its top line. Moreover, there is ever-increasing demand for electronic payment transactions, which provide it with abundant scope for growth. We thus expect to see increased revenues in the fourth quarter.

Other Drivers of 4Q Results

Accretion from ACTIVE Network Buyout: In the third quarter of 2017, the company completed the acquisition of the communities and sports divisions of ACTIVE Network, which provides cloud-based, mission-critical enterprise software solutions to event organizers. This acquisition will be highly complementary to Global Payments’ gaming business and expand its existing suite of innovative products and solutions.

For the fourth quarter of 2017, the company expects ACTIVE Network to contribute revenues in the range of nearly $40 million to $45 million. However, due to the seasonality of the ACTIVE Network business, the company is forecasting this transaction to reduce margin expansion in the fourth quarter. The takeover will be immaterial to fourth-quarter adjusted earnings per share.

Superior Performing International Business: The company’s international business led by Europe and Asia-Pacific remains strong. Given its favorable performance in e-commerce and omni-channel solutions business in Europe, we expect the strength to continue.

High Interest Expense: Nevertheless, the bottom line may suffer from an increase in interest cost due to high debt incurred to fund its acquisitions.

Guidance

Followed by strong earnings performance and closure of the ACTIVE Network acquisition, the company raised its 2017 adjusted earnings guidance to a range of $3.94 to $4.02 per share (from $3.85 to $4.00 guided previously), which reflects growth of 24% to 26% over 2016. Adjusted net revenues are expected between $3.505 billion and $3.53 billion (versus $3.40 billion and $3.48 billion), reflecting an increase of 23% to 24% from 2016.

Earnings Whispers

As per our proven model, Global Payments is poised to beat estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Global Payments has an Earning ESP of +0.62%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Global Payments carries a Zacks Rank #3, which increases the predictive power of ESP.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these too have the right combination of elements to post an earnings beat this quarter:  

WEX (WEX - Free Report) is expected to report fourth-quarter earnings on Feb 21. The stock has a Zacks Rank #2 and an Earnings ESP of +0.53%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Evertec, Inc. (EVTC - Free Report) is expected to report its fourth-quarter earnings on Feb 21. The stock carries a Zacks Rank #3 and has an Earnings ESP of +1.44%.

CenturyLink, Inc. (CTL - Free Report) is expected to report fourth-quarter earnings on Feb 14. The stock has a Zacks Rank #3 and an Earnings ESP of +14.87%.

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