EVERTEC, Inc. (EVTC) in San Juan, Puerto Rico, is in the transaction processing business. The company operates through four segments: Payment Services – Puerto Rico & Caribbean; Payment Services – Latin America; Merchant Acquiring; and Business Solutions. In comparison, Atlanta, Ga.-headquartered Global Payments Inc. (GPN) provides payment technology and software solutions for cards, electronic, check, and digital-based payments. The company operates through three segments: Merchant Solutions; Issuer Solutions; and Business and Consumer Solutions.
The COVID-19 pandemic has led to a massive surge in e-commerce sales, thereby boosting the need for payment processing solutions. Furthermore, with growing consumer demand for contactless delivery and payments, the demand for payment technology solutions is increasing significantly. The payment processing solutions market is expected to register an approximately 10.2% CAGR during the period 2021 – 2026. Given the accelerated adoption of digital payment methods, both EVTC and GPN should benefit.
EVTC has gained 20% in price over the past six months, while GPN has shed 23.9% over the period. Also, EVTC’s 15.8% gains year-to-date compare with GPN’s 23.9% slump. In terms of past year’s performance, EVTC is the clear winner with 33.3% gains versus GPN’s 6.7%.
But which stock is a better buy now? Let’s find out.
On September 8, GPN sealed an agreement to purchase MineralTree, a leading provider of accounts payable automation and business-to-business (B2B) payments solutions. This acquisition is expected to enhance its B2B product suite and allow the company to better serve its customers.
On August 11, EVTC announced that S&P Global Ratings had upgraded EVTC’s issuer credit rating to BB-/Stable Outlook from B+. S&P noted EVTC’s conservative balance sheet and solid credit metrics while it expanded its revenue amid several external impacts was the basis for this upgrade. This follows EVTC’s corporate family credit rating upgrade from B2 to B1 by Moody’s on August 5.
Recent Financial Results
EVTC’s revenues increased 26% year-over-year to $149.14 million in its fiscal second quarter ended June 30. Its adjusted EBITDA stood at $80.26 million, up 60% from the same period last year. Its adjusted net income grew 105.7% from its year-ago value to $57.13 million. The company’s adjusted EPS increased 105% year-over-year to $0.78.
For its fiscal second quarter, ended June 30, GPN’s adjusted net revenues increased 27.6% year-over-year to $1.94 billion. Its adjusted operating income grew 44.1% from its year-ago value to $810.19 million, while its adjusted net income improved 52.9% year-over-year to $603 million. The company’s adjusted EPS improved 55.7% year-over-year to $2.04.
Past and Expected Financial Performance
EVTC’s net income and EPS have grown at CAGRs of 40.2% and 40.1%, respectively, over the past three years, respectively. Analysts expect the company’s revenue to increase 7.7% in the next quarter, 12.7% in the current year, and 5.5% in the next year. The company’s EPS is expected to grow 6.8% in the next quarter, 28% in the current year, and 3.8% in the next year. Furthermore, EVTC’s EPS is expected to grow at a 13.4% rate per annum over the next five years.
In comparison, GPN’s net income grew at a 16% CAGR over the past three years, while its EPS declined 5.9% over this period. Analysts expect GPN’s revenue to increase 13.7% in the next quarter, 14.6% in the current year, and 10% in the next year. The company’s EPS is expected to grow 21.1% in the next quarter, 27.3% in the current year, and 17.5% in the next year. And its EPS is expected to grow at a 20.1% rate per annum over the next five years.
EVTC is more profitable, with gross profit and EBITDA margins of 58.10% and 41.91%, respectively, compared to GPN’s 54.28% and 39.84%.
Furthermore, EVTC’s ROE, ROA, and ROTC of 44.80%, 10.98%, and 12.95%, respectively, compare with GPN’s 3.23%, 2.13% and 2.52%.
Thus, EVTC is more profitable than GPN.
In terms of forward GAAP P/E, GPN is currently trading at 43.33x, which is 50.5% higher than EVTC, which is currently trading at 21.44x. Also, GPN’s 15.89 forward EV/EBITDA ratio is 21.8% higher than EVTC’s 12.43.
Thus, EVTC is a relatively affordable stock here.
EVTC has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. GPN, in contrast, has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EVTC has a Stability grade of B, owing to its less than one beta, while GPN has a Stability grade of C, consistent with its beta of slightly greater than.
The pandemic has bolstered the need for contactless payment methods. Because digital payment solutions are gaining traction, both EVTC and GNP should benefit. However, we think its higher profit margins and lower valuation make EVTC a better investment here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Financial Services (Enterprise) industry here. Also, click here to view the top-rated stocks in the Consumer Financial Services industry.
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GPN shares were trading at $162.33 per share on Friday afternoon, down $1.66 (-1.01%). Year-to-date, GPN has declined -24.39%, versus a 18.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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