Jefferies & Co. has upgraded its rating on shares of Global Payments Inc. (NYSE: GPN) to buy from hold with a price target of $50.
We are upgrading Global Payments on potential benefit from Durbin regulations, robust recent payment volume metrics from MasterCard Inc. (NYSE: MA), Discover Financial Services (NYSE: DFS), and First Data (should help Global Payments' fiscal first quarter on Oct. 4), compelling valuation following recent underperformance in shares, and continued solid international growth prospects, said Jason Kupferberg, an analyst at Jefferies.
Based on discussions at recent Electronic Payments Summit, he believes that Global Payments could benefit from the recently enacted Durbin rules in multiple ways: by pocketing (at least temporarily) some of the debit interchange savings for clients with bundled pricing, selling least-cost routing solutions to merchants and collecting payments from PIN debit networks in exchange for routing preference.
Kupferberg believes Global Payments stands to benefit from the recently released calendar third quarter intra-quarter payment volume data, which points to resiliency in U.S. consumer card spending (55 per cent of Global Payments' revenue come from the U.S.).
Recent volume updates released by MasterCard, First Data, and Discover Financial Services showed modest acceleration in U.S. payment volume growth metrics and may help bolster Global Payments' fiscal first quarter, to be reported on Oct. 4.
He models Global Payments' revenue of $514 million and cash earnings of $0.80 per share for the first quarter versus Street estimates of $517 million and $0.81 per share. Recent U.S. dollar appreciation could be a modest headwind for the fiscal 2012.
While the North America business continues to face margin headwinds from the ongoing mix shift towards the ISO channel, we are quite upbeat regarding Global Payments' non-North America prospects (now about 30 percent of total revenue), said Kupferberg.
He believes the company's joint ventures in Europe and Asia have been effective, while seeds have been planted in China and Brazil to promote long-term growth.
The brokerage maintained its 2012 EPS estimate for Global Payments of $3.03 on revenue of $2.12 billion and its 2013 estimate of $3.39 on revenue of $2.31 billion.
Global Payments stock closed Friday's regular trading down 0.10 per cent at $40.39 on the NYSE.