Global Payments shares will rise as competition falls by the wayside, Morgan Stanley says. The bank upgraded shares of the financial technology company from equal weight to overweight and increased its price target to $135 from $124. The new price target implies a 25% upside potential for the company. Shares are up more than 2% in premarket trading. The upgrade is due to “a more favorable competitive environment, an attractive valuation, better than feared recession resilience and GPN’s focus and consistent execution on strategic mergers and acquisitions,” analyst James Faucette wrote in a note Tuesday. Less Competition Good for Stocks Faucette says the changing competitive landscape should favor incumbents like Global Payments. “Capital going to fintech newbies has declined significantly since its peak in 21, with fintech VC funding down 46% in 22 and 72% in Q4,” he wrote. “We expect this trend to continue as long as interest rates remain structurally higher, giving incumbents an opportunity to better defend their positions, especially as newer fintechs are challenged by rising earnings expectations.” That’s why Morgan Stanley is increasingly positive about Global Payments and peers like FIS and Fiserv, which should benefit from a less competitive environment. Additionally, Global Payments tops the category due to its strategic focus, including a focus on mergers and acquisitions. “We continue to believe that mergers and acquisitions are the most efficient use of capital because it is the most direct route to improving competitive position,” said Faucette. “In our view, GPN has been the biggest frontrunner of deal stocks recently and has a history of consistently strong deal execution.” Merchant Engagement Global Payments also has high merchant engagement, which the release says has been during a recession might not be as detrimental as feared. Since 2020, average Global Payments revenue has outpaced U.S. consumer spending growth by about 2%, which the bank expects to be relatively sustained in 2023, which calls for 4.4% PCE growth in 23,” Faucette said. “Prior to this one With that said, we expect GPN Merchant revenue growth to remain solid in the mid to high single digits.” Even in the event of a sharper slowdown, Morgan Stanley would still expect positive spending on personal consumption, which means Global Payments’ merchant earnings are likely to grow as well Management expects the segment to continue to grow positively even in the event of a downturn.- CNBC’s Michael Bloom contributed coverage.
https://www.cnbc.com/2023/01/17/this-payment-stock-can-surge-25percent-as-a-potential-recession-means-less-competition-morgan-stanley-says.html That stock of payments can rise by 25% as a potential recession means less competition, says Morgan Stanley