Thursday, March 29, 2007

Playing Global Payments (GPN) Before The Earnings

When evaluating GPN I found several positives given the recent decline in the stock. GPN has a lot of analyst support with mean year-end price target of 50.00. GPN is currently trading at 38.90 and has hovered around that level since their last earnings miss.
This is a good opportunity for investors to cash in on a potential upside catalyst. The recent sell-off has pushed the stock's P/E below the industry's average, reducing a lot of downside pressure on the stock if tomorrow's earnings go bad. Another nice thing about this play is the high correlation between the earning surprises and changes in the stock's price (around .964, with 1 being the highest). With this correlation investors do not have to worry about having a negative stock reaction after a positive release.

The one potential problem with the stock is the third quarter's substantial miss. Buying into a negative stock is always risky and should be noted. While the last report was not encouraging, the prior four quarters beat estimates handily.

I am buying this stock with a limit of 38.98. Due to the recent plunge of the stock, I feel that any beat could yield up to an 8% run-up tomorrow. A miss should result in less than a 4% plunge due to the low P/E ratio.

2 comments:

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