GPN Stock Study (5-8-23)

Posted by Mark on June 1, 2023 at 07:19 | Last modified: May 8, 2023 14:40

I recently did a stock study on Global Payments Inc. (GPN) with a closing price of $104.78. A previous study on this company was done here.

CFRA writes:

     > Global Payments (GPN) provides payment processing and software
     > solutions globally through a variety of distribution channels,
     > which enable customers to accept card, electronic, check, and
     > digital-based payments. Specific offerings include
     > authorization, settlement, funding, customer support,
     > chargeback, security, and billing services.

This medium-size company has grown sales and earnings at annualized rates of 16.2% and 8.6% over the last nine and eight years, respectively. The latter excludes ’22 whose EPS was materially impacted by a goodwill impairment. Per the 2022 10-K:

     > A sustained decline in our share price and increases in discount
     > rates, primarily resulting from increased economic uncertainty,
     > indicated a potential decline in fair value and triggered a
     > requirement to evaluate our Issuer Solutions and our former
     > Business and Consumer Solutions reporting units for potential
     > impairment as of June 30, 2022… Based on the quantitative
     > assessment of our former Business and Consumer Solutions
     > reporting unit, including consideration of the consumer business
     > disposal group and the remaining assets of the reporting unit,
     > we recognized a goodwill impairment charge of $833.1 million
     > in our consolidated statement of income during the three
     > months ended June 30, 2022.

This company probably does not clear the barbed wire fence (visual inspection), which may explain why so few studies have been done. Revenue data is [missing for ’16 and] down in ’18 while EPS is [missing for ’16 and] down in ’15, ’18, ’19, and ’20. [Stock] Price bars in ’17 and ’23 overlap, which represents several years without significant appreciation.

Pressing on regardless, PTPM has been higher than peers and the industry by averaging 10.0% over the last five years (including 2.5% for ’22).

ROE has averaged 4.0% over the last five years. Since ’13, ROE has been mostly higher than peer and industry averages. Debt-to-Capital has fallen from 64.8% in ’13 to 39.0% in ’22 with a last-5-year average of 36.5%. This is lower than peer and industry averages since ’19. Quick Ratio and Interest Coverage are a concerning 0.50 and 0.76, respectively.

Whether or not it should, the fact that so many analysts are covering this company gives me some reassurance about liquidity. Aside from all the analysts included in consensus estimates shown below, M* says the balance sheet is sound and gives a Standard rating for Capital Allocation. Value Line gives a B++ rating for Financial Strength and says GPN “should continue to meet its various obligations with minimal difficulty.”

I forecast long-term annualized sales growth of 7% based on the following:

• CNN Business projects 6.2% YOY growth and 7.2% per year for ’23 and ’22-’24, respectively (based on 31 analysts).
• YF projects YOY 7.3% and 7.6% growth for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY growth of 6.7% and 6.8% for ’23 and ’24, respectively (10).
• Value Line projects annualized growth of 7.2% from ’22-’27.
• CFRA projects 7.2% YOY and 7.0% growth per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 2.8% per year while projecting 5-year annualized growth of 8.0% in its analyst note.

I am forecasting below the long-term estimates.

I forecast long-term annualized EPS growth of 12% based on the following:

• CNN Business projects 11.2% YOY and 12.8% per year for ’23 and ’22-’24, respectively (based on 31 analysts), along with a 5-year annualized growth of 13.7%.
• MarketWatch projects 12.8% and 12.6% for ’22-’24 and ’22-’25, respectively (36 analysts).
• Nasdaq.com projects 15.2% YOY and 16.6% per year for ’24 and ’23-’25 (11, 11, and 3 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 14.8%.
• YF projects YOY 10.8% and 14.0% for ’23 and ’24, respectively (33), along with 5-year annualized growth of 14.6%.
• Zacks projects YOY 11.1% and 15.2% for ’23 and ’24, respectively (12), along with 5-year annualized growth of 15.8%.
• Value Line projects annualized growth of 12.5% from ’22-’27.
• CFRA projects 10.9% YOY and 12.9% per year for ’23 and ’22-’24 along with a 3-year estimated CAGR of 14.0%.
• M* provides a long-term estimate of 16.6%.

I am forecasting below the long-term-estimate range (mean of six: 14.7%).

Because ’22 GAAP EPS of $0.40 is NMF as an initial value, I will project from the ’22 trendline at $2.93/share. This is more conservative (lower) than ’21 EPS of $3.29/share.

My Forecast High P/E is 30. Over the last 10 years, high P/E has trended up from 21.9 in ’13 to 67.1 in ’21 with what I suspect are surrounding NMF (i.e. 85.8, 111, and 384 in ’19, ’20, and ’22). I am forecasting at the upper end of my comfort zone, which is the lowest high P/E since ’14 (25.7).

My Forecast Low P/E is 25. Over the last 10 years, low P/E has trended up from 13.3 in ’13 to 54.1 in ’20 with what I suspect are surrounding NMF (i.e. 45.6, 54.1, and 231 in ’19, ’20, and ’22). My forecast is the lowest low P/E since ’17 (22.9).

My Low Stock Price Forecast (LSPF) is $73.30, which is default given the low EPS value mentioned above of $2.93/share. This is 30.0% less than the previous close and 20.6% less than the 52-week low.

Payout Ratio was below 3.0% through ’18 before averaging 25.8% from ’19-’21 (’22 is NMF). I am forecasting low at 10.0%.

These inputs land GPN in the HOLD zone with an U/D ratio of 1.6. Total Annualized Return (TAR) is 8.5%.

PAR (using Forecast Average—not High—P/E) is 6.7%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 46 studies done in the past 90 days (my study along with 24 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 9.0%, 13.0%, 40.2, 28.2, and 12.7%. I am lower across the board. Value Line projects a future average annual P/E of 26.5, which is lower than MS (34.2) and just lower than mine (27.5). MOS backing the current study seems moderate.

With regard to other data, MS high and low EPS are $2.02/share (median $0.90) and $1.74/share compared to my $5.17 and $2.93. MS standard deviation is quite large at $1.92 and $1.39, respectively. Along with the small sample size and discrepant mean/median high EPS, this may reflect confusion about how to handle the GAAP EPS. Furthermore, 20 out of 46 studies have low EPS $0.39 or less, which I would argue to be unreasonable. The MS LSPF of $68.90 implies a Forecast Low P/E of 39.6 (versus the above-stated 28.2) and is 28.8% higher than the $1.74 * 28.2 = $49.07 default. Despite being 6.0% lower than mine, this is rather aggressive forecast with regard to valuation.

I would look to re-evaluate GPN under $93/share as a speculative (smaller) holding due mainly to poor visual inspection and questionable liquidity ratios (also a sign that this analyst may not fully understand the business).