Can Higher Costs Hurt Global Payments' (GPN) Q4 Earnings?

Global Payments Inc. GPN is set to report its fourth-quarter 2023 results on Feb 14, before the opening bell.

What Do Estimates Say?

The Zacks Consensus Estimate for fourth-quarter earnings per share of $2.63 suggests an 8.7% increase from the prior-year reported figure of $2.42. However, the consensus mark witnessed no upward movement in the past week against one downward estimate revision. The consensus mark for fourth-quarter revenues of $2.2 billion indicates a 7.9% increase from the year-ago reported figure.

Global Payments beat the consensus estimate for earnings in three of the prior four quarters and missed once, the average surprise being 1.5%. This is depicted in the graph below:

Global Payments Inc. Price and EPS Surprise

Global Payments Inc. Price and EPS Surprise

Global Payments Inc. price-eps-surprise | Global Payments Inc. Quote

Before we get into what to expect for the to-be-reported quarter in detail, it is worth taking a look at GPN’s previous-quarter performance first.

Q3 Earnings Rewind

In the last reported quarter, the leading payment technology company’s adjusted earnings of $2.75 per share beat the Zacks Consensus Estimate by 1.5% due to solid contributions from its merchant and core issuer businesses. Both businesses benefited from rising transaction volumes. However, an elevated expense level partly offsets the upside.

Let’s see how things have shaped up prior to the fourth-quarter earnings announcement.

Q4 Factors to Note

In the fourth quarter, results from GPN’s Merchant Solutions — its biggest operating segment — are likely to have increased from resilient customer spending, increase in new integrated partners and point of sale growth. The Zacks Consensus Estimate for adjusted revenues from Merchant Solutions indicates an 18.7% increase from the year-ago period’s reported number, whereas our model estimates an 18.4% increase.

A strong vertical market growth and sales figure growth are likely to have aided the Merchant Solutions segment. The consensus mark for adjusted operating income indicates nearly 20% growth from a year ago, while our model estimate suggests a 20.7% increase. Improvement in Central Europe and Spain operations are expected to have supported its performance.

Both the consensus estimate and our model estimate for Issuer Solutions’ adjusted revenues signal a 5.5% increase from the year-ago figure. Core issuer’s constant-currency growth and its expanding traditional accounts are likely to have aided the segment in the quarter under review. The consensus estimate for adjusted operating income from the unit indicates a rise of 3% in the fourth quarter.

The Zacks Consensus Estimates for revenues from Americas and Europe operations indicate 2.5% and 34.6% year-over-year increases in the fourth quarter, respectively.

The above-mentioned factors are expected to have positioned GPN for significant year-over-year growth. However, profits from the businesses are likely to have been partially offset by increased costs under certain heads in the fourth quarter. Our model expects adjusted selling, general and administrative expenses to have increased more than 22% year over year.

For the upcoming quarter, we anticipate the adjusted cost of service to be around $492 million. Continuous investments to upgrade digital capabilities are anticipated to have put pressure on profit margins. As such, adjusted total operating expenses are expected to have climbed nearly 7% year-over-year in the fourth quarter, making an earnings beat uncertain. Moreover, the Zacks Consensus Estimate for revenues from Asia Pacific indicates a 3.2% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Global Payments this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.

Earnings ESP: The company’s Earnings ESP is -0.24%. This is because the Most Accurate Estimate is currently pegged lower than the Zacks Consensus Estimate of $2.63.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Global Payments currently carries a Zacks Rank #3.

Stocks to Consider

While an earnings beat looks uncertain for Global Payments, here are some companies from the broader Business Services space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

PagSeguro Digital Ltd. PAGS has an Earnings ESP of +10.35% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for PagSeguro’s bottom line for the to-be-reported quarter is pegged at 29 cents per share, which suggests a 20.8% year-over-year jump. The estimate remained stable over the past week. PAGS beat earnings estimates in all the past four quarters, with an average surprise of 9%.

Fidelity National Information Services, Inc. FIS has an Earnings ESP of +3.40% and is a Zacks #3 Ranked player.

The Zacks Consensus Estimate for Fidelity National’s bottom line for the to-be-reported quarter is pegged at 95 cents per share, which remained stable for the past week. It beat earnings estimates thrice in the past four quarters and missed once. Furthermore, the consensus mark for FIS’ revenues is pegged at more than $2.5 billion.

Block, Inc. SQ has an Earnings ESP of +1.67% and a Zacks Rank of 3.

The Zacks Consensus Estimate for Block’s bottom line for the to-be-reported quarter is pegged at 60 cents per share, indicating 172.7% year-over-year growth. SQ beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 11%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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