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3 Reasons Worldpay Is a Buy

By Matthew Cochrane - Updated Apr 11, 2019 at 2:23PM

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The world's largest payment processing company is still realizing cost savings and growth opportunities from its large acquisition last year.

As Worldpay (WP) nears its first anniversary as a newly formed company, the product of Vantiv acquiring U.K.-based Worldpay, early results continue to appear promising. This was further reinforced after the world's largest payment processing company reported its 2018 fourth-quarter and full-year results late last month.

In the fourth quarter, revenue rose to $1.05 billion, a 9% increase year over year on a pro forma basis, which simply means the combined two companies' revenue totals are being used as the previous year's comparable. Worldpay's adjusted earnings per share (EPS) grew to $1.12, a 15% increase over last year's fourth-quarter total, again on a pro forma basis. Once again, the company's management made a convincing argument that the vast scale of the new company, large cost savings, and cross-selling opportunities that the combination created more than justified the decision to join forces during the company's quarterly conference call.

A person reaching over a counter to pay by credit card.

Worldpay continues to realize cost savings and revenue synergies from Vantiv's acquisition of Worldpay last year. Image source: Getty Images.

A worldwide scale

In his opening remarks, CEO Charles Drucker called the company's global reach "a true differentiator for us," something that no other payment processor could match. To cite one example, Drucker walked investors through the reasons why Lenovo Group (LNVGY 4.00%) chose Worldpay to handle the payments of its international operations:

First is Lenovo, an international technology company that manufactures one of the world's largest portfolios of connected products, including the ThinkPad line of PCs. Lenovo wanted to consolidate multiple domestic acquirers and expand globally ... Our acquiring relationship will start in Japan and extend to the U.S. and Canada, consolidating acquirers with us.

This important cross-sell win demonstrates the power of our client value proposition, that wouldn't have happened without a transformative combination. A dedicated team of payment experts developed a tailored solution for Lenovo and that'd harvest our global reach and innovative technology to seamlessly integrate global eCommerce transactions into their technology architecture.

Drucker credited many of the company's new customer wins to Worldpay's global reach.

Check out the latest earnings call transcript for Worldpay.

Significant cost savings

Worldpay is also achieving some of its cost-saving goals ahead of schedule. One of the company's first priorities was to migrate the legacy Worldpay's U.S. merchants onto the legacy Vantiv's payments platform. To date, 80,000 such merchants have already been switched onto the new platform, which is much more scalable. Once the migration is complete, the older platform can be consolidated, resulting in savings and simplification.

In 2018, Worldpay managed to find $52 million in savings, all from cost synergies, exceeding the guidance it gave of $45 million in cost synergies. Worldpay management stated the cost savings it is realizing ahead of schedule only increase its confidence that it will recognize $200 million of cost synergies by the end of 2020.

Cross-selling opportunities

Concerning the merger of the two companies, perhaps an even bigger selling point than the cost saving synergies was the company's opportunities to cross-sell each legacy company's clients with new products and services that the other legacy company could offer. One such example was Lenovo, as already discussed, but there have been more. To date, Drucker stated, Worldpay has signed 26 cross-selling deals.

Drucker is confident that Worldpay can recognize $100 million in additional revenue from these opportunities by the end of 2020, but later emphasized that this was just the beginning of what could be a long runway of revenue synergies beyond the $100 million target.

At this point, we're getting good success early in the win rates and as they start converting and we see the revenue flow through it, can give us different levels of confidence as we pull into 2020 and 2021. ... It's still ... early innings. We forget a lot of times here, but we are only one year into this.

A world of opportunity

Based on the midpoint of its 2019 full-year EPS guidance of $4.55, Worldpay shares are currently trading at a forward P/E ratio of about 21.5. The same guidance implies earnings growth of about 12.5%. Based on the guidance, the company's shares appear relatively attractive. Yet given the opportunities before the company, I can't help but wonder if guidance was set a little low.

Worldpay is already ahead of schedule in finding cost savings after the merger. The company has already signed 26 deals, within one year, from the two companies' existing clients. Finally, the combined company offers a global reach that other payment processing companies simply cannot match. This potent mixture of factors provides Worldpay with several catalysts going forward, and gives investors an opportunity to buy shares before they appreciate further.

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