GPN Stock Study (2-13-23)

I recently* did a stock study on Global Payments Inc. (GPN) with a closing price of $117.88.

CFRA writes:

     > Global Payments (GPN) provides payment processing and software
     > solutions globally through a variety of distribution channels,
     > which enable customers to accept card, electronic, check, and
     > digital-based payments. Specific offerings include
     > authorization, settlement, funding, customer support,
     > chargeback, security, and billing services.

This medium-sized company has grown sales and earnings at annualized rates of 14.5% and 6.5% over the last 10 years, respectively. Visual inspection is not great. Revenue data is [missing for ’16 and] down in ’18 while EPS data is [missing for ’16 and] down in ’15, ’18, ’19, and ’20. Q2 and Q3 2022 EPS have declined sharply. [Stock] Price bars in ’17 and ’22 overlap, which represents several years without significant appreciation. PTPM, which averaged 14.6% from ’12-’14, has averaged 11.5% over the last five years. Although apparently in decline, this beats peer and industry averages.

ROE has averaged 4% over the last five years, which seems low. The industry averages 6%, though, while peers average 6.8% (both excluding ’20, which is -161% or worse). Debt-to-Capital, which ranged from 51.1% (’12) to 75.5% (’14) between ’12-’18, has averaged 28% over the last three years. The latter is less than peer and industry averages. Quick Ratio and Interest Coverage are a concerning 0.53 and 1.4, respectively.

The fact that so many analysts are covering this company gives me some [hopefully not illusory] assurance about its liquidity. Aside from all the analysts represented below, M* says the balance sheet is sound. Value Line gives a B++ financial strength grade and says “it should continue to easily meet its various obligations.” CFRA says expected FCF generation ($2.2B and $2.5B in ’22 and ’23, respectively) should allow leverage to return to historical levels by the end of ’23.

I assume long-term annualized sales growth of 8% based on the following:

• CNN Business projects 4.9% YOY growth and 6.6% per year for ’22 and ’21-’23, respectively (based on 27 analysts).
• YF projects YOY 6.3% and 9.2% growth for ’23 and ’24, respectively (24 analysts).
• Zacks projects YOY growth of 6.6% and 2.6% for ’23 and ’24, respectively (7).
• Value Line projects annualized growth of 8.3% from ’21-’26.
• CFRA projects 3.9% YOY contraction for ’23.
• M* provides a 2-year ACE of 1.6% growth and 8% growth per year through ’26 (analyst note).

I assume long-term annualized EPS growth of 10% based on the following:

• CNN Business projects 10.4% YOY and 12.5% per year for ’22 and ’21-’23, respectively (based on 27 analysts), along with 5-year annualized growth of 14.8%.
• MarketWatch projects 12.5% and 11.5% per year for ’22-’24 and ’22-’25, respectively (31 analysts).
• Nasdaq.com projects 11.8% YOY growth for ’24 (10 and 2 analysts for ’23 and ’24).
• Seeking Alpha projects 4-year annualized growth of 17%.
• YF projects YOY 11.4% and 14.5% for ’23 and ’24, respectively (24), along with 5-year annualized growth of 15.1%.
• Zacks projects YOY 9.9% and 13.6% for ’23 and ’24, respectively (7), along with 5-year annualized growth of 15.8%.
• Value Line projects annualized growth of 13.7% from ’21-’26.
• CFRA projects 14.5% YOY for ’23 and 3-year projected annualized growth of 15%.
• M* provides a long-term estimate of 16.6%.

My forecast is below the range of six long-term estimates (mean 15.5%).

As Q2 and Q3 of ’22 were atypically soft ($0.13 and $0.17/share, respectively), I will not originate the earnings projection from there. Given trendline ($2.90) or ’21 ($3.29), I choose the former (more conservative).

My Forecast High P/E is 35. Over the last 10 years, high P/E has trended up from 18.6 (’12) to 67.1 (’21) excluding upside outliers of 85.8 and 110.6 in ’19 and ’20. The last-5-year average (excluding outliers) is 49.2.

My Forecast Low P/E is 28. Over the last 10 years, low P/E has trended up from 14.3 (’12) to 35.5 (’21). ’19 and ’20 were high at 45.6 and 54.1, but not to an extreme. The last-5-year average is 38.3.

My Low Stock Price Forecast is $92.10. In projecting from the trendline, I also need to manually override EPS (to $2.90) rather than defaulting to TTM ($0.17) for calculation of the Low Stock Price Forecast. This is 21.9% below previous close, equal to the 52-week low, and below both ’20 and ’21 low stock prices.

Payout Ratio was below 3% in ’18 and earlier before averaging 25.8% over the last three years. I will assume 10% to be conservative.

All this computes to an U/D ratio of 2.6, which makes GPN a HOLD. The Total Annualized Return is 9.8%, but PAR (using Forecast Average, not High, P/E) is 7.5%: less than I want out of a medium-sized company.

To better interpret this, I use Member Sentiment (MS) to assess the study’s margin of safety (MOS). Out of 50 studies over the past 90 days (my own and two others with invalid low prices excluded), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 9.3%, 22.2%, 44.4, 29, and 13.9%, respectively. My inputs are all lower. Value Line projects an average annual P/E of 40, which is higher than MS (36.7) and me (31.5). MOS seems robust here.

MS has an extreme Low Stock Price Forecast of $63.83. This is over 30% lower than mine and below the 2017 low price. Eleven studies are in the single digits, which leaves me scratching my head. From the lowest price in the last three months to now, GPN has rallied 26.5%. This may explain some of the forecasts, but not those under $30/share.

Excluding these 15 studies, I get an MS Low Stock Price Forecast of $87.42, which seems more reasonable. This would equate to a Forecast Low P/E of 26.5 in my study. I will stick with my $92.10 because my forecast P/E range is low enough already.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.