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Global Payments Inc. topped expectations with its fourth-quarter results Wednesday and gave an upbeat view of merger synergies, but that wasn’t enough to send shares of the fintech company higher in the session.
The company posted adjusted earnings per share of $1.62 on revenue of $1.8 billion for the period, whereas analysts were modeling $1.60 in EPS and $1.75 billion in revenue.
Global Payments GPN, -0.60% also said it now expects to yield annual run rate cost synergies of at least $350 million within three years following its merger with Total System Services, up from a prior forecast of at least $325 million. The company maintained its forecast for $125 million in revenue synergies over the same span.
“The early signs are that the merger is going better than expected and you see that in our results for the fourth quarter… and our guide for 2020,” Chief Executive Jeff Sloan told MarketWatch.
Jefferies analyst Trevor Williams highlighted that the midpoint of Global Payments’ revenue outlook came up a bit shy of the consensus view, but he said that “the better synergy outlook…for consecutive quarters, projected 2H20 acceleration, and management’s track record of beats/raises should more than offset this.” He rates the stock a buy with a $235 target price.
Shares were off 0.6% in midday trading, which analysts attributed to high expectations heading into the report as the stock had climbed 11% to start the year through Tuesday’s close.
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Global Payments’ report came about a week after French payment-services companies Worldline and Ingenico Group agreed to merge in a deal valued at €7.8 billion, or $8.65 billion. The combination is “further validation” of Global Payments’ strategy, Sloan said, as Global Payments has been trying to build scale and focus on the payments part of the value chain while other companies pursue a broader suite of capabilities in addition to payments.
“The pure-play payments strategy has been very successful and now others are emulating it,” he said.
Sloan argued that the company’s strategic focus helped it outperform in the U.K. market amid a sluggish macroeconomic environment there. Global Payments grew U.K. revenue in the high single digits while economic growth in the country was largely flat. He attributed the company’s success in the U.K. to an emphasis on small- and medium-sized businesses that he said were less likely to be “disintermediated” by e-commerce and omnichannel pressures, strong sales execution, and exposure to the restaurant industry that is showing “above-average growth.”
Sloan also discussed the big opportunity that Global Payments sees in the restaurant business. “Most people don’t think of [quick-service restaurants] this way but it’s totally true that there’s been more technological change in QSR over the past three years than in the prior 30 years,” he said. The company’s Xenial product “sits right in the vortex” of such trends that are leading to more personalized ordering experiences, he said.
Global Payments shares have added 18% over the past three months, as the S&P 500 SPX, +0.52% has risen 9%.