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Global Payments (GPN) Up 6.7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Global Payments (GPN). Shares have added about 6.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Global Payments due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Global Payments Beats on Q3 Earnings, Raises '23 EPS View

Global Payments reported third-quarter 2023 adjusted earnings per share (EPS) of $2.75, which outpaced the Zacks Consensus Estimate by 1.5%. The bottom line improved 10.9% year over year.

Adjusted net revenues of $2,232.4 million rose 8.5% year over year in the third quarter. The top line beat the consensus mark by 0.4%.

The strong quarterly results gained from solid contributions from its merchant and core issuer businesses. Both businesses benefited from rising transaction volumes. However, an elevated expense level partly offsets the upside.

Operating Performance

The adjusted operating income advanced 9.6% year over year to $1,019.5 million in the third quarter and beat our estimate by 0.4%.

The adjusted operating margin of 45.7% improved 50 basis points (bps) year over year but lagged our estimate by 10 bps.

Total operating expenses increased 1% year over year to $1,917.5 million in the quarter under review. The increase was due to higher selling, general and administrative expenses in the quarter. The metric surpassed our estimate by 1.1%. Interest and other expenses of $176.1 million rose 30.3% year over year and surpassed our estimate by 8.2%.

Segmental Performances

Merchant Solutions: Adjusted revenues of the segment amounted to $1,728 million, which grew 19.2% year over year in the third quarter. The improvement came from a 33% increase in new integrated partners, 20% POS growth and mid-teens growth in Central Europe and Spain. The reported figure lagged our estimate by 0.9%.

The segment’s adjusted operating income of $847.7 million improved 17% year over year and surpassed our consensus mark by 1.2%.

Issuer Solutions: The segment recorded adjusted revenues of $519.7 million, which rose 6.3% year over year in the quarter under review, thanks to core issuer constant-currency growth and an increase in traditional accounts. The figure lagged our estimate by 1.4%.

Adjusted operating income came in at $246.6 million, up 8.7% year over year, which lagged our estimate by 2.5%.

Financial Position (as of Sep 30, 2023)

Global Payments exited the third quarter with cash and cash equivalents of $1,941.8 million, which declined from $1,997.6 million at 2022-end.

Total assets of $48,924.6 million grew from $44,809 million at 2022-end.

Long-term debt amounted to $16,570.8 million, which increased from $12,289.2 million at 2022-end. The current portion of long-term debt amounted to $80 million at the end of the third quarter.

Total equity of $22,684.8 million increased from $22,540 at 2022-end.

In the first nine months of 2023, GPN generated operating cash flows of $1,591.3 million, which increased 3.7% year over year.

Capital Deployment Update

The company did not repurchase any shares in the third quarter of 2023. Management declared a quarterly dividend of 25 cents per share, which will be paid out on Dec 29, 2023, to its shareholders of record as of Dec 15.

2023 Guidance Hiked

On the basis of the robust financial results delivered in the third quarter of 2023, management hiked the 2023 guidance for some metrics.

Adjusted net revenues are currently forecasted to be between $8,660 million and $8,735 million. The midpoint of the revised outlook implies an improvement of 7-8% from the 2022 reported figure.

Adjusted net revenue growth in the Merchant Solutions segment is expected to stay around 16% in 2023. Meanwhile, the Issuer Solutions segment’s adjusted net revenues are projected to be in the 5-6% band.

Adjusted EPS is anticipated to lie between $10.39 and $10.45 this year, indicating an improvement from the previous guidance of $10.35-$10.44. The midpoint of the updated guidance suggests 11-12% growth from the 2022 figure. GPN expects to convert almost 100% of adjusted net income into adjusted free cash flow.

The adjusted operating margin is continued to be expected to increase up to 120 bps in 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Global Payments has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Global Payments has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Global Payments is part of the Zacks Financial Transaction Services industry. Over the past month, Western Union (WU), a stock from the same industry, has gained 2.7%. The company reported its results for the quarter ended September 2023 more than a month ago.

Western Union reported revenues of $1.1 billion in the last reported quarter, representing a year-over-year change of +0.8%. EPS of $0.43 for the same period compares with $0.42 a year ago.

Western Union is expected to post earnings of $0.36 per share for the current quarter, representing a year-over-year change of +12.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Western Union. Also, the stock has a VGM Score of A.

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