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What Lies Ahead for Global Payments (GPN) in Q1 Earnings?

Zacks Equity Research

Global Payments Inc. GPN is scheduled to report first-quarter 2019 earnings on May 2. Earnings are expected to benefit from increase in payment processing volumes and merchant services volumes growth, which, in turn, should drive revenues of the company’s U.S. direct business.

The Zacks Consensus Estimate for the company’s earnings is pegged at $1.30 per share, indicating an upside of 15% from the year-ago period reported figure. Revenues are estimated to be $1.04 billion, implying an increase of 12.1% from the year-ago period reported figure.

Factors Affecting Q1 Results

One of the company’s most important growth strategy — its worldwide ecommerce and omni-channel businesses — have continued its track record of strong growth in the first quarter. Notably, adjusted net revenues plus network fees for this business have more than doubled over the past three years and we expect the trend to continue in the first quarter.
Another business strategy of the company, its commitment to expand presence in the faster-growth payments markets with attractive fundamentals, has led to business growth.

Global Payments completed the acquisition of AdvancedMD, a leading provider of cloud-based software as a service, or SaaS solutions, to small-to-medium-sized physician practices in the United States and SICOM, recently. These acquisitions were funded by a combination of cash on hand and existing revolving credit facility.  As a result of these transactions, pro-forma leverage must have gone up. Currently, the company’s debt by equity ratio is 123% compared with the industry average of 75%. The increase in leverage will also lead to higher interest expense in the first quarter.

The company, however, expects AdvancedMD and SICOM to contribute adjusted net revenues of $125 million to $100 million for the full year of 2019. Therefore, we, expect a part of this to accrue in the first quarter of 2019 in the company’s direct business.

Its wholesale business, however, is expected to decline due to the company’s strategy to move away from it. Revenues from its Canada business are also likely to suffer due to a weak Canadian dollar in the to-be reported quarter.

Overall, revenues will be, to some extent, affected by adverse exchange rates.

Share repurchases made by the company is likely to provide an extra cushion to the bottom line.

Earnings Surprise

The company boasts an attractive earnings surprise having surpassed earnings estimates in each of the four quarters with an average positive surprise of 3.26%.

Global Payments Inc. Price and EPS Surprise

Global Payments Inc. Price and EPS Surprise | Global Payments Inc. Quote

Here is what our quantitative model predicts:

Our proven model does not conclusively show that Global Payments is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Global Payments has an Earning ESP of -0.19%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks Rank: Global Payments carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Square, Inc. SQ has an Earnings ESP of +5.5% and a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

PayPal Holdings, Inc. PYPL has an Earnings ESP of +0.53% and a Zacks Rank #2.

FleetCor Technologies, Inc. FLT has an Earnings ESP of +0.38% and a Zacks Rank #2.

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