Global Payments (GPN) is a worldwide provider of payment technology and software.
I am bullish on the stock. (See Insiders’ Hot Stocks on TipRanks)
Mineral Tree acquisition
Global Payments has agreed to acquire Mineral Tree for $500 million. The deal is anticipated to close by the end of Q4, subject to regulatory approvals.
Mineral Tree’s SaaS offerings automate key procurement processes, which include invoicing, approvals, payment options, and related options.
It’s anticipated that the acquisition would substantially increase Global Payments’ access to hyper-growth markets, which adds to the general quality of the firm’s top-line earnings.
Global Payments will be using its existing credit facilities and cash on its balance sheet to pay for the acquisition.
If the company were to issue additional shares to finance the acquisition, you’d have to wonder whether the stock price could face dilution in the near to medium term.
Global payments holds 316.8% more working capital on its balance sheet than its five-year average.
This means the company’s in a position to acquire comfortably without stressing out its balance sheet. The only question remains whether the acquisition will be accretive or not, but based on the target’s industry growth (CAGR of 11% from 2020-24), and the prospective synergies between the two firms, you’d have to say so.
Earnings & Key Metrics
Global Payments exceeded expectations with its Q2 earnings release, as it continues to add to its worth via accretive acquisitions.
The fintech company added $2.1 billion in revenue during its second quarter, topping analysts’ estimates by 15%. Furthermore, EPS estimates were beaten by $0.14, and operating margins widened to 17% from 6.4% a year ago.
Management has raised its full-year guidance, and now expects recognized revenue of $7.7 billion to $7.73 billion, versus a previous estimate of $7.55 billion to $7.63 billion.
The stock’s of good value with a P/E ratio trading 21.5% below its five-year average, while its PEG ratio (0.49) remains below 1, which indicates the company’s growing faster than its stock price.
Global Payments recently increased its quarterly dividend by 28%, and now yields 0.6%.
Wall Street’s Take
Wall Street loves the stock, labelling it a Strong Buy. The average Global Payments price target of $225 implies 45.2% upside potential. There have been 14 Buy ratings, two Hold ratings, and no Sell ratings assigned to the stock in the past three months.
Concluding Thoughts
Global Payments has underperformed recently due to a dilutive balance sheet caused by a large number of acquisitions.
The acquisitions have started to pay off big time, and Mineral Tree will only add to its prospects.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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