On Monday, Bernstein SocGen Group maintained a Market Perform rating for Global Payments (NYSE:GPN) stock with a steady price target of $112.00.
The firm highlighted the stock's significant decline, noting it has fallen 22% year-to-date and is trading near its five-year lows, with a price-to-earnings ratio at approximately 8 times the 2025 estimates, which is close to the lowest ever recorded.
The analyst pointed out that Global Payments' valuation gap compared to peers such as FIS and FI has notably widened. The evaluation of a path to shareholder value creation through potential activist involvement was discussed.
This could reinforce actions already in progress at Global Payments, such as divesting non-core assets, transforming operations, focusing on capital returns, and shifting from an M&A-led growth model to a more mature and stable business.
Global Payments has already indicated a willingness to consider various methods for enhancing shareholder value. The analyst noted that while it might be less clear how Global Payments could benefit from unwinding its merger with TSYS compared to FISWorldpay, there is still a potential 10% stock upside from a possible issuer divestiture.
The analyst's sum-of-the-parts analysis applies an 8.5x EV/EBITDA multiple to the merchant segment and 13x to the issuer segment, with an estimated $300 million in dis-synergies.
The sale of certain non-core assets, including AdvancedMD, some international businesses, and possibly Active, could be mid-single-digit percentage accretive to FY25 earnings. This would be due to incremental buybacks of around $2 billion more than offsetting the earnings from divested assets.
While the likelihood of a private equity or strategic buyer for Global Payments is considered lower due to its enterprise value of $40 billion, the possibility remains, especially if valuations stay at current levels.
The analyst also mentioned that since August 2022, Silver Lake has held a $1.5 billion convertible note with a conversion price around $140 and has obtained a board seat at Global Payments.
In other recent news, Global Payments Inc. has been the focus of several analyst firms. Baird reaffirmed its Outperform rating on the company, citing a positive risk/reward outlook and expectations of a 10-15% growth in earnings per share.
However, RBC Capital, Mizuho Securities, and KeyBanc have all adjusted their price targets for Global Payments. RBC Capital reduced its target to $143, Mizuho Securities to $100, and KeyBanc to $135, while all retaining their positive ratings.
Barclays also maintained an Overweight rating on Global Payments despite investor concerns regarding a projected slowdown in the Merchant Solutions segment.
The firm suggests that the reasons behind the forecasted deceleration are less worrisome than perceived. Meanwhile, Seaport Global Securities downgraded the stock from Buy to Neutral due to concerns about the company's growth projections.
These recent developments follow Global Payments' announcement of strategic realignment and operational transformation plans. The company aims to return $7.5 billion to shareholders over the next three years while forecasting revenue and earnings per share growth through 2027. However, the company's guidance for fiscal year 2025 has led to some adjustments in analysts' outlooks and price targets.
InvestingPro Insights
Global Payments' current market situation, as highlighted by Bernstein SocGen Group, is further illuminated by recent data from InvestingPro. The company's market cap stands at $25.22 billion, with a P/E ratio of 18.24. This valuation is notably lower than the analyst's fair value estimate of $130 per share, suggesting potential upside.
InvestingPro Tips indicate that Global Payments is trading at a low P/E ratio relative to its near-term earnings growth, which aligns with the analyst's observation of the stock trading near five-year lows. Additionally, the company has maintained dividend payments for 24 consecutive years, demonstrating a commitment to shareholder returns that could be attractive to potential activists or investors.
The company's revenue growth of 6.63% over the last twelve months and a strong gross profit margin of 62.84% suggest operational resilience, which could support the potential for value creation strategies discussed in the article. These metrics, combined with the analyst's insights, provide a more comprehensive view of Global Payments' financial health and market position.
For readers interested in a deeper analysis, InvestingPro offers 6 additional tips for Global Payments, providing further insights into the company's prospects and potential investment considerations.
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