Global Payments: Steady Is Good

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After some extreme volatility earlier this year, payment-processing and money-transfer firm Global Payments (NYSE: GPN) appears to be settling into a period of steady yet unspectacular growth. That's not all bad, though; a revival in the money-transfer business could bolster its future prospects, and the core business is an indisputable king of cash.

Global Payments is an infant by most corporate standards, having been incorporated in September 2000 and taken public in April 2001. Perhaps by design, the company resembles a younger First Data (now privately held) -- before it separated its payment-processing segment from money-transfer leader Western Union (NYSE: WU).

Motley Fool Inside Value subscribers are well aware of the fat margins that both businesses possess, because First Data was a successful recommendation, and Western Union remains a pick. Global Payments lets investors gain exposure to each business, though its DolEx money-transfer business is a fraction of the size of Western Union's and Moneygram's (NYSE: MGI), and accounted for only about 11% of first-quarter sales.

The money-transfer segment is currently treading water on the sales front. Domestic immigration debates are hurting the core business, as citizens in developed countries send funds to friends or family in developing ones. Operating-income trends for this segment were more dire -- they fell 20% for the quarter, accounting for only 5.6% of total operating income.

Merchant services, which includes payment-processing services for merchants, financial institutions, and credit card companies such as MasterCard (NYSE: MA), posted an impressive 21% increase in sales. But operating income grew only 4.3% on a one-time charge related to consolidating an operating center.

Management is still calling for 13%-17% top-line growth for the full year, and it expects diluted earnings to grow by 6%-11%, a far cry from the past five-year average of 40% earnings growth. It will take a recovery in the money-transfer business for Global Payments to boost bottom-line trends again, but with free cash flow tending to exceed reported net income by a wide margin, and still-favorable prospects for industry growth, this stock is worth keeping an eye on.   

For related Foolishness:

• Global Payments Could Pay Off
• Foolish Forecast: The Ledger on Global Payments