Global Payments Continues To Hit The Mark With An Increasingly Tech-Driven Platform

Fintech has continued to perform well, with investors understandably attracted to the strong earnings growth that many of these companies are generating. In the case of Global Payments (GPN), management continues to show the benefits of its tech-enabled payments model, with strong revenue growth and improving margins on lower churn. While the shares went nowhere for basically the first half of the year, strong second quarters earnings have pushed the shares up almost 30% on a year-to-date basis and up about 15% since my last update on the company.

At this point, I think the market has Global Payments more or less accurately priced, but it wouldn’t surprise me if the ongoing enthusiasm for fintech took the shares higher, particularly if third quarter earnings come in strong.

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Global Payments Continues To Hit The Mark With An Increasingly Tech-Driven Platform

FIS Prized For Its Leverage To Bank IT Investments

I was fairly lukewarm on FIS (FIS) back in May of this year, and the shares have since risen another 5% or so – keeping pace with the S&P 500 but largely sitting out the strong ongoing run in fintech names, as peers/comps like Jack Henry (JKHY), Worldpay (WP), Fiserv (FISV), and Total System Services (TSS) have shot higher as Wall Street seemingly can’t get enough of the fintech sector growth story.

As it concerns FIS, while I like the story of leveraging ongoing growth in bank IT investment, including a growing willingness to outsource as “keeping up with the Morgans” with internally-developed systems becomes prohibitively expensive, I just don’t see the growth here to support a substantially higher share price. Outsourcing among banks could perhaps inflect more strongly than I expect, or FIS could perhaps migrate a bit further down-market from its core Tier 1/Tier 2 bank focus, but this remains a stock where I understand the fundamental drivers but struggle to make more sense of the valuation and expectations.

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FIS Prized For Its Leverage To Bank IT Investments

Global Payments Executing On Its Vision And Delivering Margin Leverage

It may sound uncomfortably similar to "it's different this time", but Global Payments (GPN) is a prime example of how good companies always seem to manage to find a way to do better than expected. In the case of Global Payments, it has taken the integrated payment and omni-channel concepts and run with them, combining/folding payment functionality into broader offerings of specialized software and services that not only make the customer relationships stickier but more profitable as well.

Global Payments sports high multiples and high expectations, and I wouldn't ignore the competitive threats posed by existing head-to-head rivals (not to mention potential future threats from companies like Amazon (AMZN), Square (SQ), and PayPal (PYPL)), but I believe Global Payments' integrated and omni-channel offerings, as well as its strong global position, make it a formidable player in the market. A high single-digit revenue growth rate from here can support a fair value in the $120s, but I would expect this stock to sell off pretty sharply if the earnings momentum were to falter.

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Global Payments Executing On Its Vision And Delivering Margin Leverage

Wirecard Seems Wired For Growth

Even though it's highly competitive, merchant acquiring and processing has been a lucrative business for companies ranging from Cielo (OTCQX:CIOXY) to Global Payments (NYSE:GPN) to U.S. Bancorp (NYSE:USB) to Worldpay (OTCPK:WPYGY). Wirecard (OTCPK:WCAGY) has been making its mark by attempting to establish itself as a leading acquirer, processor, and facilitator of global e-commerce, and the company has been reporting impressive revenue growth for some time.
Despite (and perhaps because of) that growth, though, Wirecard has been a controversial name.

Putting aside mudslinging from the cheap seats alleging all manner of wrongdoing at the company, there are legitimate complaints about the company's aggressive use and definitions with its balance sheet, earnings quality, and weak cash conversion. Transparency has improved, though, and more aggressive investors may well regard these risk factors as part of the price paid when you invest in complex high-growth stories. I don't necessarily see the shares as dramatically overvalued, the premium for the growth potential here seems quite reasonable and the bull-case scenarios lead to some appealing upside.

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Wirecard Seems Wired For Growth