Global Payments (GPN), a company that focuses on payment technologies, recently turned in its earnings report. While the report itself was positive, investor reaction to it was much less so.
The company has spent most of Monday morning’s trading in almost freefall, despite the solid news on earnings.
Despite this recent turnaround, I’m bullish on the company going forward. It’s building a lot of new relationships to bolster its market. An upcoming recession would certainly do some damage to the company’s bottom line. However, it’s still getting set up for solid returns down the line.
It’s been a rough year for Global Payments trading. The company lost nearly half its value in the space between May and December 2021. Recovery followed, but the company is still well off its 2021 highs.
The latest news isn’t helping much. Global Payments posted its earnings report, featuring a beat for both earnings and revenue. Earnings came out to $2.07 per share against projections calling for $2.04. Revenue also topped forecasts.
Adjusted net revenues came in at $1.95 billion, which not only beat projections, but also improved from a year prior. However, it’s worth noting that not all projections were beat revenue-wise; Investing.com was expecting $1.96 billion in revenue.
Wall Street’s Take
Turning to Wall Street, Global Payments has a Strong Buy consensus rating. That’s based on 13 Buys and two Holds assigned in the past three months. The average Global Payments price target of $184.93 implies 50.4% upside potential.
Analyst price targets range from a low of $155 per share to a high of $210 per share.
Investor Sentiment Proving Fairly Positive
The investor sentiment picture, meanwhile, is fairly solid except for one glaring fault.
The TipRanks 13-F Tracker finds that interest in Global Payments from hedge funds is making a comeback. Shares owned by hedge funds went from around 4.973 million in September 2021 to just over 6.545 million in December 2021. This was after three quarters of decline that started in December 2020.
Retail investors who hold portfolios on TipRanks have shown a growing interest as well. The percentage of portfolios holding Global Payments was up 0.4% in the last 30 days. In the last seven days, it was up 0.4% on top of that.
Global Payments’ dividend history is also solid. 2020 left the dividend fairly static from its 2019 levels. Starting in September 2021, the company started raising the bar once more.
Regular raises are key to drawing income investors who need those raises to keep pace — or at least try to — with inflation.
The only real fly in the ointment is insider trading. Insider trading at Global Payments has been sell-weighted for some time now. In the last three months, it’s been comparatively close.
Sell transactions have outpaced buy by 17 to 11 in the last three months. In the last year, however, that steps up to 39 sell transactions to 23 buy transactions.
Building Toward a Better Tomorrow
It’s not looking bad at Global Payments. Sure, it’s unsettling to see insiders sell off, but there’s still a reasonable amount of insider buying. When only insider trading is much of a drawback, it’s easy to see the positives here.
One of the biggest problems that sent Global Payments down Monday was its forward projections. While Global Payments did hike its expectations for adjusted operating margin, it also released one whopper of a caveat.
The outlook assumes that pandemic recovery will continue. It also assumes that the overall macroeconomic environment will be stable through the rest of the year.
The likelihood of continued pandemic recovery is, at best, bleak. Just ask anyone in Shanghai, assuming you’re allowed to talk to anyone in Shanghai. Some signs, though, suggest that the Shanghai crunch may finally be easing.
Expecting a stable macroeconomic environment these days may be a bridge too far as well. Take a war going on between Europe’s breadbasket and its primary fuel source, and inflation running amok all over, and “stability” seems more like a fever dream than a likely economic outcome.
However, while Global Payments’ own projections for the short term seem weak, there is almost always a morning after. A recession is likely in the cards for the global market. That’s going to impact a payments processor as well.
Fewer people will likely be shopping online, as disposable income is generally in decline during a recession.
Global Payments may have prepared for this eventuality already. The company already inked a new partnership with CaixaBank to handle card-issuing duties. Further, the company also set up a strategic alliance with Bakkt (BKKT) to offer support in digital assets.
It’s one thing to lose trade in one area. A recession would do that much. When you add whole new areas though, you can often make up for many of those losses.
Sometimes, the new business makes up for the loss completely, and even beyond that.
Concluding Views
It would be easy to dismiss Global Payments as an upcoming casualty of the likely recession. It will suffer in such an environment, certainly. Fewer payments mean lower revenues.
Global Payments’ own projections depend on an almost laughable set of circumstances to achieve, but don’t let that throw you too much.
This, too, shall pass. That’s the most likely outcome, anyway, and also why I’m bullish.
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