Few firms have shrugged off the global recession, and even fewer financial institutions have thrived in this tough economic environment. But there is at least one financial company that's making great strides despite the downturn: Global Payments (NYSE:GPN), an electronic transaction processing company. GPN has attracted analyst attention, and has a solid chance of posting yet another year of double-digit profit growth. Read on to find out how it's thriving while others fail.
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Recent Results
GPN's first-quarter revenues grew 8.8% to $441.3 million as the flagship merchant services segment, which provides electronic transaction processing services for consumers, merchants and financial institutions, posted 6% growth in North America and impressive 28.7% growth in Europe and the Asia Pacific region. Merchant services accounted for just under 93% of total revenue. The balance consisted of the Dolex money transfer segment, which allows consumers to transfer money to one another. This unit continued to struggle and saw revenues decline 14.7%.
Operating income fell a negligible 0.4%, primarily on an 8.6% decline in North American merchant profitability. The money transfer segment posted a more severe 24% profit decline, both of which were offset by a stellar 40.9% jump in international merchant operating income. A lower tax rate and decrease in other expense items helped keep year-over-year earnings exactly flat at 71 cents per diluted share.
Management is currently projecting full-year revenues between $1.69 billion and $1.74 billion for 6-9% growth. Diluted earnings should come in between $2.43 and $2.54 per diluted share for 9-14% growth over fiscal 2009 EPS.
How Investors Can Cash In
Net income represented 13.1% of sales to illustrate that Global Payment's core operations are quite profitable. This is appealing to strategic and financial buyers who may be interested in folding in a rival or harnessing the ample cash flow financial transaction providers throw off. First Data Corporation was acquired at the height of the credit bubble by private equity players, while Metavante was spun off by Marshall & Ilsley Corporation (NYSE:MI) and quickly snapped up by Fidelity National Information Services (NYSE:FIS) in a deal that closed late last week. This leaves multiple avenues for investors to make money.
Shares of Global Payments are up 40% so far in 2009 thanks to organic growth and the acquisition of rivals, such as the June 2008 purchase of HSBC's (NYSE:HBC) merchant services business in the U.K. Yet the company remains small enough to be acquired, which would likely be at a hefty premium to the current share price. Investors may also want to keep an eye on Fundtech (Nasdaq:FNDT), an even smaller rival to Global Payments that has equally compelling overseas growth prospects. (For more, see Banking Profits In Bull And Bear Markets.)
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