Earnings Preview: Global Payments

Global Payments (GPN) is expected to report Q1 earnings after market close Thursday, October 2, with a conference call scheduled for 5:00 p.m. ET.

Guidance

The consensus estimate is 60c for EPS and $395.73M for revenue, according to First Call.

Analyst Views

Janney Montgomery's Q1 estimate is the low on the street at 55c, and assumes 70 bps of sequential margin compression to 25.0% within the company's core merchant processing segment. In Janney's view, increased investments on infrastructure, higher contribution from the lower-margin ISO channel, and overall economic distress will offset any upside from Canadian pricing changes in the quarter. Janney believes earnings trends remain challenged for the company. Margin pressures in the company's core US ISO merchant processing channel will likely continue this year, leading management to pursue international acquisitions, said Janney.

Looking Forward: Global Payments provided encouraging FY09 guidance on its last earnings call of EPS of $2.20 to $2.30 and revenue of $1.62B to $1.75B. Its worth noting that Global Payments, in recent quarters, has exceeded its own guidance. Janney's revenue growth estimate for FY09 is 31%, at the high end of management's guidance of 27% to 31%. Janney rates GPN shares a Neutral based on the thesis that acquisitions could add to the margin pressure within the core U.S. channel. Also, at 19.6x forward earnings, Janney finds the shares fully valued.

Piper is estimating a Q1 in-line with consensus expectations. The firm maintains a Neutral on valuation. While Piper remains comfortable with their earnings forecast, there are obvious headwinds (dollar strength, slowing U.S. and global growth) to potential EPS upside, which it believes could limit the valuation of the stock.

Key issues for the earnings call: Forward guidance, commentary on the core business in the U.S. amid the weakening economy and credit crisis, an update on the recent ZAO United Card Service acquisition, commentary on GPN's expansion plans in Eastern Europe, Asia and elsewhere