On Monday, Wells Fargo (NYSE:WFC) analyst Andrew Bauch revised the price target for Global Payments (NYSE:GPN) shares, reducing it to $77.00 from the previous $106.00, while maintaining an Equal Weight rating on the stock. According to InvestingPro data, analyst targets for the stock range from $65 to $172, with the current consensus suggesting potential upside. Bauch provided an analysis of the company’s recent performance and strategic decisions, expressing a cautious stance amid various investor concerns and the company’s future prospects.
Global Payments’ stock experienced a significant drop, falling 17% as compared to a stable performance in the S&P 500 and a 9% rise in shares of FIS. Bauch highlighted that this reaction might seem excessive, but it did spark a number of questions among investors. The concerns raised include the use of proceeds from the Issuer sale, the potential risks associated with increased leverage during a possible recession, the company’s track record with mergers and acquisitions, and the economics of the stock payout by GTCR.
Despite these worries, some investors remain optimistic about Global Payments’ narrowed focus on the Merchant sector and the expansion into e-commerce, enterprise, omnichannel, and integrated technology assets. Valuation debates have largely revolved around the sale price of assets and determining which party benefitted more from the transactions.
Bauch also commented on the financial impact of the company’s strategic moves, including the sale of the Issuer segment and the acquisition of WP. He noted that while the addition of WP is unlikely to significantly affect top-line growth, it could contribute approximately one percentage point of growth to 7% due to synergies. However, he also pointed out that the sale of the Issuer segment, which had higher margins, in favor of WP with lower margins, could be slightly dilutive even when synergies are taken into account.
The management of Global Payments anticipates the deals to be modestly accretive to adjusted earnings per share in the first year and to increase to mid-single to high-single digits thereafter. Bauch agrees that the deals look good on paper but remains skeptical about achieving high-single-digit accretion without resuming buybacks after reducing leverage to around 3x within 18-24 months post-closure. He also suggests that the projected accretion is contingent upon successful synergy execution, which could be overly ambitious.
In conclusion, while Global Payments is making transformative efforts, Bauch remains on the sidelines due to ongoing structural questions and the potential for elevated churn risk. He awaits evidence of effective execution before adopting a more positive stance on the stock. The updated price target reflects a sector de-rating and uncertainty about the company’s ability to execute its strategies effectively. Despite these concerns, InvestingPro analysis indicates the stock is currently undervalued, with a P/E ratio of 11.47 and a track record of 25 consecutive years of dividend payments. For deeper insights into Global Payments’ valuation and future prospects, including 12 additional ProTips and comprehensive financial metrics, investors can access the full Pro Research Report on InvestingPro.
In other recent news, Global Payments Inc. has announced significant transactions that could reshape its business landscape. The company is selling its Issuer Solutions segment to FIS for $13.5 billion while acquiring Worldpay from GTCR and FIS for a net purchase price of $22.7 billion. These moves are expected to position Global Payments as a leading merchant solutions provider. Barclays (LON:BARC) analyst Ramsey El-Assal maintains an Overweight rating on the stock with a $110 price target, highlighting the strategic nature of these transactions. However, Jefferies analyst Trevor Williams downgraded Global Payments from Buy to Hold, reducing the price target to $75 due to concerns about the company’s strategic direction and increased leverage.
The acquisition of Worldpay is anticipated to enhance Global Payments’ global reach, with expected pro forma adjusted net revenue of approximately $12.5 billion and adjusted EBITDA of about $6.5 billion. The strategic partnership with FIS aims to offer a comprehensive suite of solutions globally. Global Payments has reported preliminary results for the first quarter of 2025, with adjusted net revenue of $2,205 million and adjusted earnings per share of $2.69, aligning with previous expectations. The transactions are subject to regulatory approvals and customary closing conditions, marking a pivotal moment in Global Payments’ strategic focus on merchant solutions.
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