GPN Stock Study (7-30-24)
Posted by Mark on September 18, 2024 at 07:11 | Last modified: July 30, 2024 11:14I recently did a stock study on Global Payments Inc. (GPN) with a closing price of $101.57. Previous studies are here and here.
M* writes:
> Global Payments is a leading provider of payment processing and
> software solutions and focuses on serving small and midsize
> merchants. The company operates in 30 countries and generates
> about one fourth of its revenue from outside North America,
> primarily in Europe and Asia. In 2019, Global Payments merged
> with Total System Services in an all-stock deal that gave Total
> System Services shareholders 48% of the combined company’s
> shares. The merger added issuer processing operations.
Over the last 10 years, the medium-size company has grown sales and earnings at annualized rates of 16.9% and 5.4%, respectively. I am excluding ’22 from the whole analysis due to EPS impact by 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.
Global Payments Inc. probably does not clear the barbed wire fence (visual inspection), which may explain why so few stock studies have been done. Revenue [data is missing for ’16 and] is down YOY in ’18 while EPS is [missing for ’16 and] down in ’15, ’18, ’19, and ’20. EPS R^2 is 0.77 and 0.33 for 5 and 10 years, respectively.
Although I would therefore limit investment to speculative size only, price bars in ’17 and ’24 overlap. This represents several years without significant stock appreciation. I hope for a “coiled spring” effect when seeing this.
Over the last decade, PTPM is higher than peer and industry averages while ranging from 8.0% in ’20 to 16.7% in ’18 with a last-5-year mean of 10.7%. ROE is [alarmingly low albeit] slightly better than peer and industry averages while ranging from 2.1% in ’20 to 37.5% in ’15 with a last-5-year mean of 3.1%. Debt-to-Capital is less than peer and industry averages since 2019 while falling from 75.5% (’14) to 43.0% (’23) with a last-5-year mean of 31.8%.
Per M*, Quick Ratio and Interest Coverage are a concerning 0.31 and 3.2, respectively.
The numerous analysts 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 (one notch above its median) and says Global Payments “should continue to meet its various obligations with minimal difficulty.”
With regard to sales growth:
- YF projects YOY 6.4% and 7.3% for ’24 and ’25, respectively (based on 33 analysts).
- Zacks projects YOY 6.4% and 7.0% for ’24 and ’25, respectively (11 analysts).
- Value Line projects annualized growth of 5.6% from ’23-’28.
- CFRA projects 7.3% YOY and 7.1% per year for ’24 and ’23-’25, respectively.
- M* provides a 2-year ACE of 2.5% per year while projecting 5-year annualized growth of 7.0% in its analyst note.
My 4.0% forecast is near bottom of the range.
With regard to EPS growth:
- MarketWatch projects 12.7% and 12.5% per year for ’23-’25 and ’23-’26, respectively (based on 38 analysts).
- Nasdaq.com projects 8.7% YOY and 14.1% per year for ’25 and ’24-’26 (12, 12, and 2 analysts for ’24, ’25, and ’26).
- Seeking Alpha projects 4-year annualized growth of 11.1%.
- Argus projects 5-year annualized growth of 15.0%.
- YF projects YOY 11.3% and 13.2% for ’24 and ’25, respectively (34), along with 5-year annualized growth of 13.7%.
- Zacks projects YOY 11.8% and 13.5% for ’24 and ’25, respectively (14), along with 5-year annualized growth of 14.2%.
- Value Line projects annualized growth of 11.0% from ’23-’28.
- CFRA projects 11.8% YOY and 12.6% per year for ’24 and ’23-’25 along with a 3-year CAGR of 12.0%.
- M* provides a long-term estimate of 24.3%.
My 11.0% forecast is below the long-term-estimate range (mean of six: 14.9%). Initial value is ’23 EPS of $3.77/share rather than 2024 Q1 $5.04 (annualized).
My Forecast High P/E is 30.0. Over the last 10 years, high P/E trends up from 25.7 in ’14 to 36.6 in ’23 with what I suspect are surrounding NMF [85.8, 111, 67.1, and 384 in ’19, ’20, ’21, and ’22]. The last-5-year mean reduces to 36.6 (’23 value) and the last 5-year-mean average P/E (with respective exclusions for low P/E) reduces to 30.8 (’23 value). I am near lower end of the 10-year range (only ’14 is less).
My Forecast Low P/E is 21.0. Over the last 10 years, low P/E trends up from 16.3 in ’14 to 24.9 in ’23 with what I suspect are surrounding NMF [45.6, 54.1, and 231 in ’19, ’20, and ’22]. The last-5-year mean reduces to 30.2 (’21 and ’23 values). My forecast is near bottom of the range (only ’14 is less).
My Low Stock Price Forecast (LSPF) is default $79.20 based on initial value given above. This is 22.0% less than the previous close and 13.5% less than the 52-week low.
Over the last decade, Payout Ratio (PR) ranges from 1.4% in ’17-’18 to 40.0% in ’20 (excluding 250% in ’22) with a last-5-year mean of 26.5%. My 10.0% forecast is near bottom of the range.
These inputs land GPN in the BUY zone with a U/D ratio of 4.0. Total Annualized Return (TAR) is 13.7%.
PAR (using Forecast Average—not High—P/E) is 10.2%, 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 eight studies done in the past 90 days (my study along with seven outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.0%, 12.0%, 29.0, 19.5, and 52.2%. My forecast P/E range is higher. Value Line projects a future average annual P/E of 22.5: lower than MS (24.3) and lower than mine (25.5).
MS high / low EPS are $7.85 / $4.69 versus my $6.35 / $3.77 (per share). My high EPS is less due to a lower initial value. Value Line’s high EPS of $7.25 is in the middle.
MS LSPF of $86.70 implies a Forecast Low P/E of 18.5: less than the above-stated 19.5. MS LSPF is 5.2% less than the default $4.69/share * 19.5 = $91.46 resulting in more conservative zoning. MS LSPF is 9.5% greater than mine, however.
With regard to valuation, PEG is 0.81 and 1.7 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is quite low at 0.66.
MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. Comparison with the latter carries little impact due to a tiny sample size, but MS TAR of 19.2% is anecdotally 5.5% per year greater than mine.
Per U/D, GPN is a BUY under $100/share. BI TAR criterion is met ~$95/share given a forecast high price ~$190.
A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).
Categories: BetterInvesting® | Comments (0) | Permalink