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Global Payments Inc.
GPN-N
BUY ON WEAKNESS
Mar 20, 2023
N/A
Stock price when the opinion was issued
Financial Services
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DON'T BUY
Among the biggest losers on the S&P in 2021 #2, down 37%. This used to be a perennial winner, because global payments is an essential part of the credit card food chain, spanning the world. This partners with 200 large banks and 1,000 smaller ones. Problem is there are a dozen competitors. Too many companies chasing too few accounts.
Financial Services
The sell-off in the share price recently is due to a few reasons:
In 2022, the company did record an impairment of goodwill of their previous acquisition, which the market perceives as an overpayment for their previous acquisition, leading to questionable capital allocation skills of management. Debt also increased with acquisitions, and is now about 5X cash flow, fairly high for the current environment.
Recessions could affect consumers’ purchases, which affects GPN’s business. Also, amid the banking crisis recently, companies related to the Financial sector are under pressure.
The good news is that there is some insider purchases at these prices in the last few months, and the company also repurchased shares quite significantly in 2022, indicating management believes shares are quite undervalued. Payments and card processing is a high-quality business with high ROEs and predictable growth. We think GPN will do OK going forward, although investors also need to be mindful of their acquisitions strategies. Its decline is not really out of line vs other companies over the past year, and it is well priced at 9.6X earnings.
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