Global Payments (NYSE:GPN) has established itself as a key player for payments processing in the U.S. and abroad. I like how the company earns a percentage of every transaction or a fee per transaction. The company allows merchants to accept payments online, in-person, or with mobile devices. In this respect, Global Payments is like a toll-taker for the numerous transactions that occur with its systems daily. I've always liked Visa (V) since it also acts as a toll-taker for the processing of payments. While Visa offers credit, Global Payments enables merchants to accept credit and debit cards for payment processing.
Global Payments has a number of catalysts that are likely to drive the stock higher over the next few years. In the near term, the company exceeded its earnings estimates for FQ3 and increased EPS guidance for FY15 to be 16% to 18% higher than FY14. Consensus estimates for FY15 have been raised from $4.73 90 days ago to $4.81. Likewise, the consensus estimates for FY16 have increased from $5.27 to $5.38 over the past 90 days. This has had a positive effect on the stock, which I think will continue until the next catalyst surfaces. Since the current consensus EPS estimate for FY15 is on the low end of the company's range, Global Payments could achieve actuals that are in the upper range. The company has a good track record of exceeding its EPS estimates, so I think it is likely that the FY15 actual EPS will wind up in the upper half of the company's range.
The strength of the U.S. economy is also a likely catalyst for Global Payments. With U.S. GDP growth expected to average 3% for each quarter in 2015, the company is likely to benefit from a strong volume of transactions. Lower oil and gas prices are likely to add to this as the savings for consumers is expected to be about $90 billion across 124 million households in 2015. The cost savings from lower fuel prices and increasing wages from a tighter labor market are likely to lead to an increase in point-of-sale transactions, thus leading to higher revenue for Global Payments.
Other catalysts for the future include recent acquisitions. The company indicated in its FQ3 conference call that the acquisitions of Ezidebit and Realex Payments would be beneficial to margins for the long term. So, these additions will contribute positively to earnings growth, while expanding Global Payments internationally. Ezidebit expands the company in the Asia Pacific region, while Realex Payments boosts the company's presence in Europe. Having this acquisition strategy will enable Global Payments to continue its growth for the future.
Global Payments recently accelerated its share repurchase program. The addition of $100 million was tacked onto the $202 million remaining on the last share repurchase authorization. This is expected to add about $0.01 per share to the company's EPS estimate for FY15. This will help GPN to meet or exceed its EPS estimates for FQ4. The share repurchases will retire more shares, thus making existing shares less diluted and more valuable for investors.
The company is currently valued slightly below the Business Services Industry. Global Payments is trading at 18.3X next year's expected EPS, while its industry is trading at 18.7X next year's expected EPS. The company also looks good in terms of longer-term growth with a PEG of 1.78 as compared to the industry's PEG of 2.11. Although GPN is trading slightly above the S&P 500's forward P/E of 17.6, the company's expected earnings growth is above average, so I think that the valuation is fair.
Overall, I think that the stock can continue to go higher as the overall market rises and as the catalysts that I discussed come to fruition. Consensus estimates are calling for earnings to grow at about 11.7% annually over the next five years. I think that it would be reasonable for the stock to gain about 11% to 12% per year, approximately in-line with earnings growth.
