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On Friday, RBC Capital Markets adjusted its stance on Global Payments Inc. (NYSE: NYSE:GPN), downgrading the stock from Outperform to Sector Perform. Accompanying this downgrade, the firm significantly reduced its price target to $86.00 from the previous $139.00. According to InvestingPro data, nine analysts have recently revised their earnings estimates downward, with current analyst targets ranging from $65 to $172, reflecting diverse market opinions. The stock appears undervalued based on InvestingPro’s Fair Value analysis. The revision follows RBC Capital’s in-depth analysis of Global Payments’ recent business activities, including the acquisition of Worldpay and the divestiture of its Issuer business. The company, currently valued at $17.72 billion, has seen its stock decline by nearly 27% over the past six months, despite maintaining strong fundamentals with a P/E ratio of 11.66.
The research firm expressed concerns about the potential complications arising from the Worldpay acquisition. According to RBC Capital, the anticipated benefits of a more simplified business narrative for Global Payments are now overshadowed by increased execution risks. The downgrade reflects apprehension about the company’s strategic decisions and their implications for future performance.
RBC Capital highlighted that the opportunity for Global Payments to cleanly sell its Issuer segment and reallocate capital to streamline operations is no longer viable. Instead, proceeds from the Issuer business sale are being used to purchase Worldpay, a business characterized by lower margins and higher volatility. This move has been met with skepticism as Worldpay has changed hands multiple times in the past, which adds to the uncertainty.
The firm also pointed out management challenges that could arise during the integration of Worldpay. RBC Capital anticipates that management’s focus over the next 12 to 18 months could be diverted, which poses additional risks and "noise" to the company’s financial projections for fiscal year 2025.
In summary, RBC Capital’s downgrade of Global Payments stock rating to Sector Perform from Outperform and the significant reduction in its price target from $139.00 to $86.00 reflects the firm’s concerns about the execution risks and management distractions associated with the Worldpay acquisition and the sale of the Issuer business. The firm’s analysis suggests caution regarding Global Payments’ near-term prospects and operational focus. Despite these concerns, InvestingPro analysis indicates a "GOOD" overall financial health score, with particularly strong marks in growth and relative value metrics. For deeper insights into Global Payments’ financial health and valuation, including exclusive ProTips and comprehensive analysis, explore the detailed Pro Research Report available on InvestingPro.
In other recent news, Global Payments has announced a series of transformative deals, including the sale of its Issuer Solutions business to FIS for $13.5 billion and the acquisition of Worldpay from GTCR and FIS for $24.5 billion. These moves are expected to potentially position Global Payments as the world’s largest merchant processor, according to William Blair. Despite the strategic significance, Jefferies downgraded Global Payments’ stock from Buy to Hold, reducing the price target to $75, citing skepticism about the benefits of scale-driven mergers. Wells Fargo (NYSE:WFC) also revised its price target for the company, lowering it to $77 while maintaining an Equal Weight rating due to various investor concerns. Barclays (LON:BARC), however, maintained an Overweight rating with a $110 price target, viewing the recent sell-off as overstated and expressing optimism about the company’s strategic direction. The transactions are expected to be accretive to adjusted earnings per share, with management aiming for mid-single to high-single digit growth over time. Analysts have raised questions about the synergies and financial impact of these deals, particularly regarding the integration of Worldpay. As the financial landscape evolves, investors are closely monitoring these developments and their implications for Global Payments’ future performance.
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