Global Payments Inc. (GPN - Free Report) is well-poised to gain from strategic initiatives and effective capital deployment strategies.
The company has an impressive earnings surprise history. It surpassed estimates in each of the trailing four quarters, the average beat being 2.92%.
The expected long-term earnings growth rate is 15.3%, better than the industry average of 11.8%.
Factors at Play
Global Payments continues to benefit on the back of improved top line. Notably, revenues have inched up marginally in first-quarter 2020. Despite the financial turmoil induced by the COVID-19 outbreak, the company prevented top-line erosion.
However, it has repealed the previously-provided guidance for 2020 due to the market uncertainty prevailing on account of the pandemic. Nevertheless, we believe that strong demand for digital payments is likely to drive the company’s revenues in the days ahead.
Furthermore, Global Payments has been on an acquisition spree with an aim to provide enhanced services and expand global foothold. Last year, it completed the buyout of Total System Services.
Total System has recently signed a long-term deal with Truist Financial Corporation (TFC). With this deal, Global Payments intends to manage credit card portfolios of Truist. We believe such agreements enable the company to develop more innovative payment solutions and provide global exposure to fast growing markets.
To counter the challenges induced by the pandemic, Global Payments has implemented several cost control measures. It is focusing on streamlining discretionary spend that includes cuts to G&E and marketing budgets, reductions in executive pay and other salary initiatives and additional targeted actions across the organization.
Additionally, the company’s improved liquidity position has resulted in a strong balance sheet and cash flows. It has sufficient cash reserves to meet debt obligations. Evidently, cash and cash equivalents came in at $1.8 billion as of Mar 31, 2020, while the current portion of long-term debt amounted at $70.6 million. Further, cash flow from operations soared 90% in the first quarter. This is also indicative of the company’s strong solvency position.
By virtue of its financial position, we believe that Global Payments engages in capital deployment in the form of share buybacks and dividend payouts. Its dividend payments have witnessed a CAGR of 57.7% over the last five years (2014-2019).
However, the company’s ROE of 6.8% compares unfavorably with the ROE of 33.9% for the industry, reflecting inefficient utilization of shareholder’s funds.
Nevertheless, shares of this Zacks Rank #3 (Hold) company has gained 21.2% in a year, outperforming the industry’s growth of 10.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other companies in the same space, namely, Mastercard Incorporated (MA - Free Report) , The Western Union Company (WU - Free Report) and Visa Inc. (V - Free Report) , have rallied 14.3%, 0.8% and 17%, respectively, in a year’s time.
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