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Domino Theory… |
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Sometimes, all it takes is one company attracting a buyer for everyone to start wondering what the neighbors are worth. |
And the payments industry may be getting a taste of that. |
It started with Global Payments $GPN ( ▲ 2.88% ) . |
The payments processor is reportedly attracting takeover interest from private-equity firms. |
Investors liked the sound of that. |
→ The stock jumped 11% on Friday. |
Not bad for a company that's lost more than 60% of its value since its 2021 peak. |
But Burry has been looking beyond Global Payments. |
If someone is interested in buying one payments company, what might the others be worth? |
And his calculations produced some rather surprising numbers. |
One competitor, in particular, could be worth roughly twice its recent stock price in a hypothetical takeover. |
No buyer has emerged for that company, and the Global Payments deal is still only a possibility. |
But one potential buyout could give Wall Street a new way to value the entire neighborhood. |
✱ So who's caught Burry's eye, and what does his math reveal? |
Let's follow the money.⇩ |
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$52 Today . $120… Maybe? |
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Michael Burry has been taking a closer look at Fiserv $FISV ( ▲ 3.82% ). |
And his numbers are rather interesting. |
The stock was trading around $52 on Monday. |
But after reports of a possible buyout of rival Global Payments, Burry ran a different calculation: |
What could Fiserv be worth if a private-equity buyer took control? |
His estimate? |
→ $100–$120 per share. |
That's roughly 92%–130% above its recent stock price. |
But there's an important condition. |
Burry's estimate assumes a new owner could cut costs, change strategy and put Fiserv's cash flow to better use.
But there's another side to Burry's math. |
Without a takeover, Fiserv trades at roughly 1.6 times his IV15 benchmark — the price at which he estimates an investment could earn 15% annually over 15 years. |
So by his own measure, Fiserv isn't particularly cheap on its own. |
→ And the company has some baggage. |
Burry points to previous management's overly ambitious growth targets and questionable disclosures, which damaged Wall Street's trust. |
New management now has to earn it back. |
✱ Fiserv reports earnings Tuesday, giving investors a fresh look at that progress. |
For now, Burry's $100–$120 scenario depends on a buyer coming in and making changes. |
And the company actually attracting takeover interest? |
Burry has a considerably less flattering assessment of that one. ↓
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The Company That Started It All… |
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While Burry has been calculating Fiserv's potential takeover value, the actual buyout speculation centers on Global Payments $GPN ( ▲ 2.88% ).
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Private-equity firm Clayton, Dubilier & Rice (CD&R) is reportedly exploring a deal alongside GTCR, Global Payments' largest shareholder. |
Investors liked the idea. |
→ Shares jumped 11% on Friday, closing at $96.84. |
Burry, however, sees things differently. |
Using his 15% annual return benchmark, he estimates a buyer could pay just $45–$60 per share. |
That's roughly 38%–54% below Friday's closing price. |
Quite a discount for the company attracting all the attention. |
His concern? Global Payments' history of acquisitions and whether management has been getting enough value from them. |
And there's one important detail. |
✱ No formal offer has been announced. |
The discussions remain preliminary, with no confirmed purchase price. |
So while Wall Street is entertaining the possibility of a takeover, Burry's math suggests the buyer would need to be rather careful with the checkbook. |
And that checkbook could face a substantial bill. ↓
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PayPal's Still in Burry's Strike Zone… |
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Burry has another payments stock on his radar. |
PayPal $PYPL ( ▲ 3.11% ) |
And unlike Fiserv, his argument doesn't depend on someone showing up with a takeover offer. |
✱ Burry calls PayPal a “Fat Pitch” — an unusually attractive opportunity by his own valuation framework. |
His reasoning? |
→ PayPal trades at roughly 0.80 times his IV15 benchmark. |
In other words, about 20% below the price Burry calculates would deliver a 15% annualized return over 15 years, assuming his forecasts prove correct. |
The latest earnings offer a mixed picture. |
→ Revenue: $8.58 billion, up just 2%.
→ Payment volume: $487.1 billion, up 6%.
→ Adjusted earnings per share: $1.45, up 8%. |
PayPal also raised its full-year adjusted earnings outlook to approximately $5.60 per share. |
Not exactly explosive growth. |
But Burry sees value in the existing business, without needing a hypothetical buyer to change the equation. |
And PayPal has already had its own brush with takeover speculation. |
Earlier this year, Stripe and Advent reportedly pursued a deal at $60.50 per share. |
Burry thought that was too low. |
The talks subsequently stalled. |
Apparently, even a “Fat Pitch” has its asking price. ↓
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Selective Sympathy… |
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Burry's enthusiasm doesn't extend to every payments company. |
Take Fidelity National Information Services $FIS ( ▲ 4.15% ). |
Using the same control-buyer framework, he estimates a value of just $18–$26 per share. |
That's approximately 33%–53% below its recent market price. |
Quite a different result from Fiserv. |
And a reminder that one potential buyout doesn't automatically make every competitor more valuable. |
There's also the question of whether the Global Payments deal can actually happen. |
→ Estimates of its net debt range from more than $17 billion to nearly $22 billion, according to TIKR and William Blair, respectively. |
That's quite a bill for a potential buyer to consider. |
And with discussions still preliminary, there's no guarantee anyone will write the check. |
One rumored buyer. Four companies. Very different price tags. |
Wall Street may be pricing the neighborhood. |
That doesn't mean every house will sell. ↓
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The Price of a Rumor … |
✱ A buyout rumor can do something rather useful for an unpopular industry. |
It gets people asking what the businesses are actually worth. |
And Burry has been asking that question across the payments sector. |
But there's an important distinction between a valuation on a spreadsheet and a price someone is willing to pay. |
A potential buyer still needs financing, a willing seller and a deal that makes economic sense. |
→ For now, Global Payments has a rumor. |
→ Fiserv has Burry's hypothetical valuation. |
→ And PayPal has his standalone investment thesis. |
And Wall Street can put a price on almost anything. |
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Don’t forget to cast your vote 👇 |
Poll of the day:Patrick De Haan says the U.S. national average gas price could fall below $4 per gallon within a week. What are you paying at the pump? |
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