Electronic payment processing is certainly not a one-size-fits-all sort of sector. You have large companies such as Motley Fool Inside Value recommendation First Data (NYSE:FDC), Motley Fool Income Investor picks JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC), and Fifth Third (NASDAQ:FITB) that historically have targeted larger merchants. And then you have Global Payments (NYSE:GPN), which is growing principally through dealing with smaller merchants.
So far, that approach still seems to be working for Global Payments. Revenue in the company's fiscal second quarter rose about 17%, operating income climbed about 23%, and net income was up nearly 30%. Those latter two numbers include the impact of restructuring charges tied mostly to severance and facility closure costs.
What's more, cash flow continues to grow nicely, and the company is seeing relatively good balance across its U.S., Canadian, and European businesses. As you might imagine, given the lower base, Europe is currently growing faster than the North American units.
This company has plenty of available avenues for growth. There are about a quarter of a billion people living in Eastern Europe, where plastic isn't as commonplace as it is here and electronic-transaction volume has been growing by more than 50% on a compounded basis. Growth prospects are likewise strong in Asia, and the company's joint venture with HSBC should be successful.
Of course, this isn't a risk-free story. Larger players are increasingly looking toward smaller merchants in an effort to augment (or salvage) growth. That, in turn, could ultimately lead to more pricing power for these merchants -- something that heretofore had been an advantage for Global Payments.
I wish I could say these shares looked like a bargain, but they don't. Sure, I appreciate the potential in markets like Eastern Europe and Asia, as well as the ongoing potential in the money-transfer business, but the stock seems to already reflect those opportunities, and it takes pretty healthy cash flow growth assumptions to get to "fairly valued."
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
