Global Payments, Inc. (GPN) shares plunged on Friday following a report that secure customer data had been compromised. On Wednesday, March 27th, prior to the bad news, the stock hit a 52 week high of $53.93 as investors had begun looking forward to Global's earnings announcement which is due out after market close on Wednesday, April 4th. The stock plummeted as low as $45.45 per share by 11:40 AM EDT on Friday.
This may provide a potential payoff for speculators and investors willing to gamble that the earnings will be on target and the stock recovers from the irrational sell-off. Global Payments will be holding a press conference on Monday morning to address customer and merchant concerns. Should the conference go well and the assurances to be given by the company accepted by investing community, there is the potential for an immediate 5-10% immediate recovery in the shares. And should they deliver a solid earnings number on Wednesday, the shares may fully recover providing the risk taker with a 10-12% gain for the week.
After all, even though the data breach appears to be quite serious, this is not the first time a breach of this magnitude has occurred in the world of credit card payments processing. According an article in the Wall Street Journal:
People familiar with the breach probe said it didn't immediately appear as large as some of the other big incidents that have been reported in recent years.
Global Payments has been growing earnings at a healthy 12.2% clip over the past five years and is on track to continue at or above this level. The company has a strong balance sheet and is sitting on $1.3 billion in cash with short and long-term debt of around $356.5 million.
There are several ways to play this depending on the speculator's risk tolerance:
Buy the shares and sit tight, or;
Buy the April 50 Call for a $1.15 (this call is dropped $2.05 on Friday), or;
Put on a straddle by buying the April 50 Call for $1.15 and the May 45 Put for $1.20.
If you already own the shares and expect the shares to remain neutral but wish to recover your loss from last week, sell a few April 55 covered calls.
This is a special situation investment and not for conservative investors. Only those willing and able to absorb up to 100% loss of capital should consider the options plays. However, conservative investors may wish to pick up a few shares here as this company makes a compelling longer-term investment as the economy continues to recover.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GPN over the next 72 hours.