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Global Payments' Accretive Acquisitions Offset by High Debt

Global Payments Inc. GPN is riding high on inorganic growth. The leading provider of merchant acquiring and payment technology services has successfully closed a number of acquisitions along with several alliances and joint ventures, in the past many years. These have led to a revenue CAGR of 12.5% between 2006 and 2016.   

The company’s most-recently reported results also benefited from the accretion from its purchase of Heartland Payments completed last year. Moreover, there is ever-increasing demand for electronic payment transactions, which provide the company abundant scope for growth.

Recently, the company upped its outlook for 2017 to account for the progress on the Heartland integration and strong first-half earnings. The company expects adjusted net revenues between $3.40 billion and $3.48 billion, reflecting an increase of 20% to 22% from 2016.

Other acquisitions which include assets of FIS Gaming Business, Pay and Shop Limited, Ezidebit, PayPros and eWay have added to the company’s overall business. Recently, the company announced that it will acquire the communities and sports divisions of ACTIVE Network, providing cloud-based, mission-critical enterprise software solutions to event organizers. We believe the company’s active acquisition strategy will help it to achieve long-term growth.

Year to date, the company’s shares have returned 38%, significantly outpacing the 25% gain by the industry it belongs to. The outperformance reflects the company’s strong growth, efforts to deleverage its balance sheet and value accretion from the acquisitions.



Though these buyouts have expedited growth for Global Payments, the company shoulders significant debt to fund the Heartland acquisition. An increase in debt consequently led to a spike in interest expenses that put pressure on margins.

Global Payments also remains exposed to currency volatility, since it derives nearly 30% of its revenues from international operations, which include Europe and the Asia Pacific. In the first half of 2017, currency exchange movements reduced revenues by 1.1%. The company’s earnings will continue to be affected by currency volatility, which is expected to prevail in the coming quarters.

Zacks Rank and Stocks to Consider

Global Payments carries a Zacks Rank #3 (Hold). Some better-ranked players in the same segment are Green Dot Corp. GDOT, Vantiv, Inc. VNTV and Western Union Co. WU. While Green Dot sports a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Green Dot has been witnessing upward estimate revisions for the last 30 days. In one year, the company’s share price has risen more than 99%.

Vantiv has been witnessing upward estimate revisions for the last 30 days. Further, the stock has surged nearly 35.1% in the last 12 months.

Western Union has been recording upward estimate revisions for the last 30 days. It beat estimates in two of the last four quarters, with an average positive surprise of 4%.

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Global Payments Inc. (GPN): Free Stock Analysis Report
 
Green Dot Corporation (GDOT): Free Stock Analysis Report
 
Vantiv, Inc. (VNTV): Free Stock Analysis Report
 
Western Union Company (The) (WU): Free Stock Analysis Report
 
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