Let me shine a spotlight on a financial name that has seen its price-to-earnings valuation shrink by some 60% from 2021 highs -- with blame for the slip falling on the overall financial picture, as well as the conflict in Ukraine. The company is Global Payments Inc. (GPN) .
This is an Atlanta-based payments technology company provides software and services to approximately four million merchant locations and more than 1,350 financial institutions across more than 170 countries. The payment processor handled around 60 billion transactions in fiscal 2021. In the parlance of payment transactions, the company is known primarily as a merchant acquirer, processing card payments on behalf of merchants. When a consumer inserts his or her payment card into a point-of-sale device or provides information in an online transaction, that device is sold or leased to merchants by an acquirer such as Global Payments.
The company's slide has occurred even as it has continued to produce solid results. Recently the shares have seen some insider buying and the stock appears to be providing at a good entry point.
To accelerate its penetration of integrated and business-to-business payment markets and expand its international presence most notably in Germany and Poland, Global Payments is buying EVO Payments for $34 a share. The combination will have around 4.5 million merchants and over 1,500 financial institutions as customers. The deal is expected to deliver $125 million of run-rate synergies and be accretive in the 12 months post-close. When the dust settles with the EVO purchase, Merchant Solutions will account for approximately three-quarters of the company's top line.
Global Payments was on a solid trajectory, increasing unadjusted earnings 28% in fiscal 2021 vs. fiscal 2020, which was up 51% over fiscal 2019, thanks to its purchase of Total Systems.
The market rewarded Global Payments by bidding its stock up to an all-time high of $220.81 in April 2021, which represented a 109% rebound off its pandemic-selloff low and a 27.1 forward P/E ratio on fiscal 2021 earnings of $8.16 a share.
But with inflation concerns prompting the Fed to execute economically injurious rate hikes, the market anticipated a slowdown in growth and compressed Global Payments' price-to-earnings multiple. Factor in a lot of "noise" in the financials due to the exiting of one business and one geography (Russia), and its stock is now trading near a four-year low despite having earnings on pace to grow around 14% fiscal 2022 vs. 2021.
The recent selloff was used as a buying opportunity for board member Troy Woods, who purchased $500,000 of stock (5,247 shares at $95.26) on Nov. 4, 2022, marking the first insider buy in approximately one year. Assuming analysts' earnings estimates for fiscal 2023 are close to accurate, the company's forward P/E multiple has compressed from 27.1 at its all-time in April 2021 to approximately 10 currently. This makes GPN a solid value in a still uncertain market.
This is how one can execute a covered call position in GPN. Using the April $105 call strikes, fashion a covered call order with a net debit in the $91.80 to $92.20 a share range (net stock price - option premium). This strategy provides downside protection of over 12% and nearly 15% of upside potential even if this stock does little from here over the just over five-month option duration. These returns are acceptable given GPN is a nicely profitable value stock with market average beta. The stock is also at long term support levels.