Global Payments Earnings: Steady on a Good Trajectory

Global Payments GPN turned in a strong second quarter, with solid growth and a strong improvement in margins. The company is tracking a bit ahead of our full-year expectations but not by a large enough margin to alter our $179 fair value estimate for the narrow-moat company. We continue to see shares as materially undervalued and believe the company’s recent performance should help to dispel fears of disruption.

Overall adjusted net revenue was up 7% year over year, or 15% excluding recent dispositions. The acquiring business continues to be the main engine, and this segment saw adjusted net revenue up 9% excluding dispositions and acquisitions. This level of growth was roughly in line with the last quarter and with our long-term expectations, suggesting the business is on a steady trend. The issuer segment saw 5% growth, in line with our long-term expectations.

Adjusted operating margins improved to 44.8% from 43.8% last year. The company’s divestitures and acquisitions create some noise in year-over-year margin comparisons this year. But longer-term, we think the scalability nature of the business will allow the company to improve margins over time.

This quarter was Cameron Bready’s first as CEO. Given that he was an insider and previously served as COO, we didn’t expect this appointment to lead to any major strategic changes. His comments on the call support this idea, in our view.