On Thursday, BMO Capital adjusted its outlook on Global Payments (NYSE:GPN), increasing the price target to $126 from $124, while maintaining a Market Perform rating on the company's stock. The firm's decision follows Global Payments' recent earnings report, which highlighted a number of positive developments.
The second-quarter earnings revealed a notable recovery in Merchant Solutions margins, which had seen a decline in previous quarters. This improvement is expected to alleviate investor concerns that had been heightened due to past performance. Additionally, Global Payments showed an enhanced free cash flow (FCF) conversion profile and a more favorable narrative around capital management.
Despite these positive indicators, the firm anticipates that any potential simplification of Global Payments' business operations will be limited in scope. The expectation is that proceeds from any business disposals would likely be reinvested into smaller-scale mergers and acquisitions rather than returned to shareholders or used for large-scale transformations.
BMO Capital also noted that, while the immediate outlook for Global Payments is stable, there are no imminent catalysts anticipated that would significantly accelerate revenue growth or lead to a reevaluation of the company's valuation multiple.
Consequently, the firm has slightly lowered its forward estimates by 1-2%, attributing this adjustment to reduced expectations for near-term stock buybacks. Despite this, the price target has been raised, reflecting a roll-forward in valuation.
In other recent news, Global Payments has reported solid performance in its second quarter, with a 6% increase in adjusted net revenue reaching $2.32 billion. This growth was mainly driven by the Merchant Solutions segment, which witnessed an 8% increase to $1.8 billion, and the Issuer Solutions segment which saw a 4% rise to $527 million. The company's Merchant segment also displayed a notable organic revenue growth of 7.5%, excluding the Take Payments division.
In light of these results, Stephens has revised its price target for Global Payments to $130.00 from $145.00, while maintaining an Overweight rating on the stock. The firm has also adjusted its 2025 earnings estimates for the company to $13.17 from $13.22.
Meanwhile, Global Payments is actively optimizing its business mix and considering smaller-scale acquisitions. Its primary focus, however, remains on returning capital to shareholders as it works on reducing its debt.
The upcoming September Investor Day is expected to provide insights into the positioning of the Merchant businesses and foundational elements for future growth.
InvestingPro Insights
As BMO Capital revises its outlook on Global Payments, real-time data from InvestingPro provides further context for investors considering the company's stock. With a market capitalization of $25.39 billion and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 14.86, Global Payments appears to be valued favorably in comparison to historical averages. The company's revenue growth over the same period was a solid 6.63%, which is consistent with the earnings report indicating a recovery in key business segments.
InvestingPro Tips highlight that while analysts have tempered their earnings expectations for the upcoming period, with 13 analysts revising their projections downward, the company is still expected to be profitable this year. Additionally, Global Payments has a commendable track record of maintaining dividend payments for 24 consecutive years, which may be of interest to income-focused investors. For those seeking more comprehensive analysis, InvestingPro offers numerous additional tips on their platform.
Investors may also take note of the stock's performance over the last six months, which has seen a significant decline of approximately 26.87%. However, the InvestingPro Fair Value estimate of $130.17 suggests potential upside from the previous close price of $99.46. This aligns with BMO Capital's increased price target, both indicating room for growth in the stock's valuation.
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