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Global Payments Inc. (NYSE:GPN) reported its first quarter results on Thursday after the close. Shares fell some 4.5% in Friday's trading session on the back of disappointing results still impacted by security breaches earlier this year.

First Quarter Results

Global Payments reported first quarter revenues of $590.3 million, up 9% on the year. Revenues beat analysts consensus of $584 million.

Cash diluted earnings per share fell by a penny to $0.87, in line with analysts expectations. GAAP diluted earnings per share fell by twenty cents to $0.59 in the first quarter of its fiscal 2013, as a result of processing system intrusion charges of $0.20 per share.

During the quarter, the company repurchased 280,000 shares for a total value of $11.8 million. Under the current authorization, Global Payments has $138.2 million remaining.

During the quarter, Global Payments made two larger acquisitions. In August, it announced the $413 million acquisition of Accelerated Payment Technologies. Furthermore, the company announced the acquisition of the remaining 44% ownership in the Asia-Pacific joint venture for $242 million.

CEO and Chairman Paul R. Garcia commented on the results:

"We are executing on our fiscal 2013 goals and initiatives while we make steady progress on the data intrusion remediation. We anticipate closing our two previously announced acquisitions, the remaining 44% ownership interest in our Asia-Pacific joint venture and the US based Accelerated Payment Technologies business, in the second quarter. These transactions support our strategy of driving long-term growth and shareholder value."

Outlook

Global Payments has updated its full year outlook, by incorporating the anticipated closings of the two acquisitions.

For the full year of its fiscal 2013, the company anticipates annual revenues of $2.36-$2.40 billion, up 7-9% on the year. Full year diluted earnings per share on a cash basis are expected to come in at $3.59-$3.66, up 2% to 4%. GAAP diluted earnings per share are expected to come in between $2.99-$3.06.

Valuation

Global Payments ended its first quarter with $841 million in cash and equivalents. The company operates with $542 million in short- and long-term debt and credit facilities for a net cash position of roughly $300 million.

Incorporating an almost 5% decline on Friday, the market values the firm at $3.3 billion. This values the operating assets of the firm at roughly $3.0 billion. Based on its full year outlook for 2013, the market values the firm at 1.3 times annual revenues and 13 times expected annual earnings.

Currently, Global Payments pays a quarterly dividend of just $0.02 per share for a dividend yield of a mere 0.2%.

Investment Thesis

Year to date, shares of Global Payments have fallen some 12%. Shares rose from $48 in January to $53 in March. Shares fell on the back of a major security breach and fell to lows of $40 during the summer. Shares traded between $40-$45 for most of the summer, now exchanging hands at $42.

Over the past five years, shares have traded largely unchanged. Shares have moved in a wide trading range of $30-$55 from that point in time. Annual revenues rose from $1.5 billion in 2009, to $2.2 billion in 2012. Adjusted net income rose from $170 million to $188 million between 2009 and 2012. Annual dividends remained stable at $0.08 per share.

Margins have been under pressure for years. While revenues have been steadily growing in recent years, net income has remained roughly stable, leading to decreasing marginal returns. Competition in the online payment industry has been steadily on the rise over the last couple of years, as large credit card companies and technology companies have stepped up their efforts in the industry.

Investors in Global Payments have had a tough year. Besides the serious security breach earlier this year, the company also announced the $413 million acquisition of Accelerated Payment Technologies. The deal which is dilutive to 2013 earnings per share was not appreciated by investors it seems.

Investors seem to be disappointed that the security breach has once again impacted quarterly earnings - this time by $0.20 per share. Investors are likely fearful that the company is engaging in an aggressive acquisition-based strategy to make up for the significant damage done by the security breaches.

I remain on the sidelines, as I see few triggers for short-term outperformance, since the company has integration tasks ahead and sees a continued impact from the breaches.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Global Payments: April's Security Breach And Acquisitions Limit Short-Term Upside

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