After investors headed for the hills last quarter, Global Payments'
To be honest, I can't figure out exactly why the stock fell as much as 23% after announcing earnings. It has since recovered, but it's still down more than 12%, to a new 52-week low. For a brief recap, third-quarter earnings beat analyst expectations, but revenue came in a little light of projections. Management also increased its own projections for the full year on a bottom-line basis, but reckons revenue will be 1% lighter than what it guided earlier.
Yet based on current numbers, revenue will grow 16%, and earnings will improve 20%-21% for all of 2007. Management also mentioned that fiscal 2008 revenue could grow in the high single to low double digits, with earnings expansion slightly lagging revenue guidance. However, management mentioned that this is only preliminary thinking on next year.
Global Payments' core payment processing business accounted for 88% of quarterly revenue and is admittedly seeing decelerating near-term growth. Its money-transfer business is struggling a bit more and only saw about 8% growth for the quarter. But as it stands, the company's overall top line is still growing at a decent clip, and it's grown more than 20% annually over the past five years.
Profitability is also impressive, since Global Payments' business mirrors that at First Data
Global Payments is a much smaller firm, as is rival Moneygram
I need to do more legwork on Moneygram, since it's also had a wild stock ride recently. But at current levels, Global Payments could be worth a further look as well. With the recent stock swoon, Global Payments is trading at less than 20 times earnings for 2007, and the free cash flow multiple is even lower. Throw in no long-term debt and a fair amount of cash on the balance sheet and you have the makings for a potentially higher-return, lower-risk investment.
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Fool contributor Ryan Fuhrmann is long shares of First Data and Western Union but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.