What happened
Shares of payments processor company Global Payments (GPN +6.58%) were falling today, down 11% as of 2:38 p.m. ET. The large payments processing giant fell after releasing an earnings report that came generally in line with revenue estimates and beat on earnings per share. Additionally, the company left its initial 2022 guidance unchanged.
So it's a bit unclear what caused such a large drop. Perhaps, with the 10-year Treasury bond reaching the psychologically important 3% threshold and fears over an aggressive Federal Reserve tightening, the bar is set much higher for companies reporting earnings -- especially economically sensitive companies in the fintech space.
NYSE: GPN
Key Data Points
So what
In the first quarter, Global Payments grew overall revenue 8%, with non-GAAP (adjusted) operating margins expanding by half a percentage point, and adjusted earnings per share rising 14% to $2.07 per share. The revenue figure came in line with expectations, while the profit line beat expectations.
Additionally, management left its 2022 guidance unchanged, consisting of revenue between $8.42 billion and $8.5 billion, equivalent to 9% to 10% growth, and adjusted earnings per share rising 16% to 19% to between $9.45 and $9.67 per share.
Given the report, as well as an undemanding valuation at just 12.7 times those 2022 earnings estimates, it's a tad strange that Global Payments fell so much on the report. Investors might be skeptical the company can hit its numbers, given that management said its outlook assumes "continuing recovery from the pandemic worldwide and a stable global macroeconomic environment throughout 2022."
Given the unpredictability of inflation, the war in Ukraine, lockdowns in China, and aggressive Fed tightening, it appears investors don't believe there will be a "stable global macroeconomic environment" in 2022. A recession would likely lower the volume going through Global Payments' merchant solutions processing platform, so investors may be skeptical the company can hit those numbers.
Additionally, while Global Payments is repurchasing a healthy amount of stock, to the tune of about $650 million last quarter, its dividend only yields about 0.73%. Perhaps Global Payments is falling into a zone where it's not quite growing fast enough for growth investors, and not paying a high enough dividend for investors seeking yields today.
Image source: Getty Images.
Now what
Global Payments is a legacy payments processor that's adapting to the new world of digital solutions. In recent months, management said it would be aggressive with mergers and acquisitions going forward, seeking digital payments companies it can plug into its massive global presence across 38 countries, with cross-border services across 170 countries.
Given the depressed price of many fintech stocks today, it could be a good time for opportunistic acquisitions for Global Payments. Of course, one can be sure investors will give each acquisition tougher scrutiny today. The company bought MineralTree, a digital business-to-business solution company, for $500 million last September, at a time when fintech valuations were higher. It's unclear exactly if that has paid off yet.
Global Payments does generate cash flow to finance acquisitions, and this could be a good time to pick up quality technology for the long term. However, in a market obsessed with the short term and whether or not a recession is coming, it may be difficult for the stock to move much higher until inflation gets under control. Still, Global Payments has high margins and generates cash flow, so there are far worse stocks out there to buy today.
