Global Payments Inc. (NYSE:GPN) processes electronic transactions for companies, financial institutions, governments and merchants. Business has been good. For the company's fiscal year which ended May 31, 2005, revenue was $784 million, up from $629 million the year before. Operating income hit $160 million.
The company's third fiscal quarter, which ended February 28 was solid again. Revenues jumped up 15% from the same period last year to $225 million. Net income rose 39% to $30 million. The company CEO, Paul Garcia, said that for the full fiscal year revenues should be $896 to $903 million. That would be an annual increase of about 15%. Things might be slowing up a little, but not bad. The market liked the news and the stock moved from below $50 at the beginning of trading on March 30 to almost $54 mid-day on the 31st.
Then, Mark Sproule of Thomas Weisel Partners hit Global Payments with a downgrade. Sproule wanted his clients to "note that current value also appears to fairly incorporate upside opportunities" according to the Associate Press.
So, raising guidance is not enough. There is a little voice telling someone that the future is not as bright as the past has been, and investors should be careful. Left unsaid was any reference to the fact that the company had alerted investors that it had a client who may have engaged in almost $40 million in "suspicious processing activities".
Shareholders have to ask how much exposure Global Payments or any other company in the industry has to this kind of risk. Maybe the downgrade from Thomas Weisel is a coincidence. Maybe not.
It's probably a safe bet that Global Payment's stock, which has gone from a 52-week low of $30.38 to the current level just below $50, is not likely to take off again soon.
GPN 1-yr Chart
Douglas A. McIntyre was the Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited site on the internet, according to MediaMetrix. He has been chief executive of On2 Technologies, Inc. and FutureSource, LLC and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. McIntyre can be reached at firstname.lastname@example.org.