Global Payments revenue growth over the next cycle is broadly in line with Visa but moderately lower than Mastercard
Global Payments (NYSE: GPN) It has a proven track record of revenue growth, and with 16% annual growth in 2019, outperformed both Visa (NYSE: V) (11% YoY) and MasterCard (NYSE: MSc) (13% YoY). Over the next cycle, we see GPN increase revenue at 13% CAGR from 2021 to 2025 versus Visa @ 14% and Mastercard @ 17%.
|Figure 1: Large-scale GPN revenue growth in line with Mastercard and Visa|
Source: Company financial statements and AlphaTech shares
Note: The 2020 CAGR of GPN includes the acquisition of TSYS
GPN EPS to be ahead of Visa but lower than Mastercard
We see GPN EPS increase 21% over the next three years through 2024 as it benefits from operating leverage and share buybacks. Visa guided mid-teen revenue growth and high-teen EPS growth for the 2022-2024 period. Mastercard directed next cycle revenue growth to be in the high teens and EPS growth in the low 20% range.
|Figure 2: GPN’s EPS is expected to grow faster than Visa over the next cycle|
Source: the company’s financial statements
Note: The 2020 EPS of GPN includes the acquisition of TSYS
GPN earnings of 21% driven by revenue growth of 13% and 4% for both operating leverage and share repurchases.
|appearance: GPN EPS Waterfall Chart During Next Cycle 2021E-2014E|
|Source: AlphaTech Equites|
The widening valuation gap between the three unexplained companies offers investors an attractive entry point.
GPN is expected to grow earnings per share by 21%, in line with Visa but trading at less than half its multiples. GPN is currently trading in NTM PE at 13.8x below its pre-pandemic lows and 8x discount to its 22x average. Interestingly, this represents a more than 17x discount to Visa’s NTM PE which we expect to increase EPS at the same rate as GPN over the next three to five year cycle.
|Figure 3: V&MA is trading at above the historical average vs. GPN trading below its lowest level|
We see from the above chart that in periods of market downturn (2019), GPNs tend to perform poorly against V and MA but recover faster than Networks in market volatility.
|Figure 4: We see an 86% rise in GPN shares|
|source: AlphaTech stock|
We see the GPN’s NTM PE doubling up to 20x, closer to its average (22x) over the next 12 months as the company executes on a 20% YoY CAGR growth profile. When applied to our 2023 EPS forecast of $11.97, it suggests a target price of $239, or c. 86% above its current share price. We upgraded the stock to “Conviction Buy”, the only company in our coverage with this rating.
Conclusion: GPN is a stark ‘buy’ given its robust growth profile and below the historical valuation multiple.
We upgraded the GPN to “Conviction Buy” as the PE NTM multi (13.8x) has fallen below its pre-pandemic lows, while the company’s EPS is expected to grow nearly 20% over the next three to five years. Over the next cycle, GPN’s compound annual growth rate (13% through 2021-24E) is expected to broadly be in line with Visa (14%) but moderately lower than Mastercard (17%). We expect GPN EPS growth (21% CAGR over 2021E-24E) to be ahead of Visa (18%) and slightly below Mastercard’s growth (24%) due to its strong operating leverage and share buybacks. We see the widening valuation gap between the three payers unexplained and expect their NTM PE multiplier to bounce back to 20x over the next year, which when applied to our EPS forecast of $11.97 means an 86% uptick.
For a payment processor’s initial coverage report, please click here.
We have upgraded Global Payments to “Conviction Buy”, the only company in our payments coverage with this rating.