Transaction processor Global Payments (NYSE:GPN) saw strong sales but posted a modest profit drop during its third quarter. It still expects to post solid growth for the full year, and although it will be below its average growth over the past five years, growth prospects remain robust over the long haul.
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Third Quarter Recap
Revenues jumped 15% and reached $454.6 million. North American merchant service revenue improved 13% on 15% growth in the U.S. and 5% growth in Canada. International growth was even more robust, rising 20% on 16% growth in Europe and very robust 31% in the Asia Pacific region. Organic growth accounted for most of the top-line increase but was also boosted by joint venture in Spain with la Caixa, the largest retail bank in Spain.

Total segment operating income increased 6% to $78.2 million for a healthy operating margin of 17.2%. North American profits rose a modest 3% but jumped 23% internationally. A reduction in other income sent total net income down 1% to $47.8 million, or 59 cents per diluted share. This came in below analyst projections.

For the full year, Global Payments projects total revenues just over $1.8 billion for year-over-year growth between 10% and 11%. It expects earnings in a range of $2.99 to $3.06 per diluted share for annual growth between 7% and 9%. Both targets were increased from previous guidance. (To learn more about guidance, see Can Earnings Guidance Accurately Predict The Future?)

Bottom Line
Global Payments continues to face tough competition for processing electronic transactions. Large banks including HSBC (NYSE:HBC), Comerica (NYSE:CMA) and Barclays (NYSE:BCS) operate sizable transaction networks, as do credit card companies such as MasterCard (NYSE:MA). Despite the intense rivalries, Global Payments has managed to grow both sales and profits 16% annually over the past five years.

Growth will fall short of these goals for this year, but at a forward P/E of just over 16, the projected growth justifies paying a slight premium to own the name. Prospects remain extremely appealing in Europe, where management is focusing on acquiring market share. And it is just getting warmed up in Asia, where sales in the region only made up 7.8% of total sales.

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Tickers in this Article: GPN, HBC, CMA, BCS, MA

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