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Global Payments Inc. (NYSE:GPN) reports preliminary financial results for the quarter ended 2012-08-31.

Global Payments Inc. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company.

Global Payments Inc.'s analysis versus peers uses the following peer-set: Western Union Co. (NYSE:WU), Fiserv Inc (NASDAQ:FISV)., Fidelity National Information Services Inc. (NYSE:FIS), Total System Services Inc. (NYSE:TSS), Heartland Payment Systems Inc. (NYSE:HPY), MoneyGram International Inc. (NASDAQ:MGI) and Euronet Worldwide Inc. (NASDAQ:EEFT). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-08-312012-05-312012-02-292011-11-302011-08-31
Revenue Growth %(1.1)11.90.6(2.3)4.4
Net Income46.75.157.961.264.0
Net Income Growth %817.7(91.2)(5.3)(4.4)9.2
Net Margin %7.90.910.911.511.8
ROE % (Annualized)16.11.719.521.221.9
ROA % (Annualized)

Valuation Drivers

Global Payments Inc.'s current Price/Book of 2.9 is about median in its peer group. The market expects Global Payments Inc. to grow at about the same rate as its chosen peers (PE of 19.3 compared to peer median of 19.0) and to maintain the peer median return (ROE of 14.8%) it currently generates.

The company's asset efficiency (asset turns of 0.8x) and net profit margins of 7.6% are both median for its peer group. Global Payments Inc.'s net margin continues to trend downward and is below (but within one standard deviation of) its four-year average net margin of 9.5%.

Economic Moat

The company has achieved better revenues growth than its chosen peers (year-on-year change in revenues of 18.5%) but its earnings growth performance has been below the median (change in annual reported earnings of -10.5% compared to the peer median of 19.6%). This suggests that, compared to its peers, the company is focused more on top-line revenues. Global Payments Inc. is currently converting every 1% of change in revenue into -0.6% change in annual reported earnings.

Global Payments Inc.'s current return on assets is around peer median (6.2% vs. peer median 6.5%). This contrasts with its higher than peer median return on assets over the past five years (8.0% vs. peer median 5.0%), suggesting that the company's relative operating performance has declined.

The company's comparatively high gross margin of 69.2% versus peer median of 42.6% suggests that it has a differentiated strategy with pricing advantages. However, Global Payments Inc.'s pre-tax margin of 12.1% is around the peer median which, combined with the healthy gross margin, suggests higher operating costs relative to peers.

Growth & Investment Strategy

While Global Payments Inc.'s revenues have grown faster than the peer median (11.2% vs. 6.2% respectively for the past three years), the market gives the stock an about peer median PE ratio of 19.3. This suggests that the market has some questions about the company's long-term strategy.

Global Payments Inc.'s annualized rate of change in capital of 10.7% over the past three years is higher than its peer median of 6.6%. This investment has generated an above peer median return on capital of 13.3% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

Global Payments Inc.'s net income margin for the last twelve months is around the peer median (7.6% vs. peer median of 8.3%). This average margin and relatively conservative accrual policy (14.7% vs. peer median of 7.1%) suggests possible understatement of its reported net income.

Global Payments Inc.'s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Company Profile

Global Payments, Inc. provides electronic payments transaction processing services for consumers, merchants, independent sales organizations, financial institutions, government agencies and multi-national corporations located throughout the United States, Canada, the United Kingdom, Spain, the Asia-Pacific region, the Czech Republic and the Russian Federation. It operates through two business segments, North America Merchant Services and International Merchant Services. The North America Merchant Services and the International Merchant Services segments target customers in many vertical industries including financial institutions, gaming, government, health care, professional services, restaurants, retail, universities, nonprofit organizations and utilities. The company was founded in September 2000 and is headquartered in Atlanta, GA.

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. I have no business relationship with any company whose stock is mentioned in this article.

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Source: Earnings Analysis: Global Payments Inc.