Global Payments: Scandal Provides An Opportunity?

Apr. 2.12 | About: Global Payments (GPN)

Shares of Global Payments (GPN) fell 9% intra-day on Friday before trading got suspended for the remainder of the trading day.

Security Breach
Global Payments announced that it identified unauthorized access to some of its processing systems. Sometime in early March credit card data may have been accessed with some 50,000 card holders possibly at risk. The company is still investigating the issue but said the breach came from a third-party vendor and not from internal systems of credit card companies.

The company contacted federal law enforcers and hired IT specialists to further investigate the breach. "It is crucial to understand that this incident does not involve our merchants or their relationships with their customers" according to the CEO Garcia.

Global Payments will hold a press conference on Monday to address customers and merchants concerns. The breach might affect the whole industry, and could possibly have an impact on consumer's confidence in credit and debit cards. Shares of Visa (V) and Mastercard (MA) fell 0.8% and 1.8% respectively on a general positive trading day.

Shares of Global Payments got halted at $47.50 per share, after trading as low as $45.10 on Friday. At the halted price, the company is valued at $3.7 billion. With a cash balance of $1.35 billion and debt of around $250 million, operating assets are valued at some $2.6 billion. Such a valuation implies a 1.4 times revenue multiple and 12.5 times earnings.

This is a very reasonable valuation for a company showing double-digit revenue growth over the last years in combination with some healthy net margins.

Investment thesis
Before Friday's announcement shares traded around all time highs of mid-fifties. The company has a relatively fair valuation with operating assets valued at a mere 12-13 times earnings despite the fact that the company has grown at a rapid pace over the last years.

Scandals provide investors with enormous opportunity as shares go on sale related to some specific events. While a security breach of credit card holders is serious, the situation seems to be contained with a "mere" 50,000 card holders involved. This is a typical situation which could rather quickly get resolved without a lasting impact on the company's image or financial performance.

If the press conference on Monday does not provide much worse news, shares trade at an interesting level for long term investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.