Shares of Global Payments are set to surge as competition falls to the wayside, according to Morgan Stanley. The bank upgraded shares of the financial technology company to overweight from equal weight and boosted its price target to $135 from $124. The new price target implies 25% upside for the company. Shares rose more than 2% in premarket trading. The upgrade is due to “a more favorable competitive backdrop, attractive valuation, better recession resilience than feared, and GPN’s focus and consistent execution on strategic M & A,” analyst James Faucette wrote in a Tuesday note. Less competition good for shares The changing competitive landscape should favor incumbents such as Global Payments, according to Faucette. “Capital going to fintech upstarts has fallen significantly from its peak in ’21, with fintech VC funding down 46% in ’22 and 72% in 4Q,” he wrote. “We expect this trend should persist so long as rates remain structurally higher, setting the stage for incumbents to better defend their positions especially as newer fintechs are challenged by rising profit expectations.” Because of this, Morgan Stanley is incrementally more positive on Global Payments and peers such as FIS and Fiserv, which should benefit from a lower competitive environment. In addition, Global Payments is top of the list in the category due to its strategic outlook, including a focus on mergers and acquisitions. “We still believe M & A is the most efficient use of capital as it’s the most direct way to improve competitive positioning,” said Faucette. “In our view, GPN has been the most-fronted amongst the deal stocks recently and has a history of consistently strong execution on deals.” Merchant exposure Global Payments also has high merchant exposure, which might not be as much of a detriment in a recession as feared, according to the note. Since 2020, average revenue from Global Payments has outpaced U.S. personal consumption expenditures growth by about 2%, which the bank expects to be relatively persistent in 2023. “While our economists are forecasting a narrow recession miss at 0.5% GDP growth, their forecast still calls for 4.4% PCE growth in ’23,” said Faucette. “With this type of backdrop, we would expect GPN Merchant revenue growth to remain solidly mid- to high single digits.” Even in the event of a steeper slowdown, Morgan Stanley would still expect personal consumption expenditures to be positive, meaning Global Payments merchant revenue would likely be positive as well. Management also expects growth in the segment to be positive in the event of a downturn. — CNBC’s Michael Bloom contributed reporting.
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