In any market, there are good businesses with operating dynamics that exceed the normal cyclical nature of economic activity. They are often non-brand-name enterprises, the kind of companies that might fall under the category of “special situations.” They are the kind of businesses that institutional investors hold without fanfare.
Global Payments Inc. an Institutional Favorite
One of these businesses is Global Payments Inc. (GPN). This Atlanta-based enterprise makes money facilitating electronic payment transactions. Business conditions remain excellent. Institutional investors already own this $6.5-billion company. Accordingly, the stock really moves when material events beat the Street.
The company’s latest numbers were very good. While very much a mature enterprise in a competitive industry, Global Payments continues to be a solid wealth creator. Institutional investors own a high percentage of this company’s float.
In its previous quarter, the company reported top-notch financial growth. (See “Early 4Q14 Earnings News Suggests Slow 2015.”) In its latest quarter, the company did so again, beating consensus, with institutional investors rallying around the position.
Fiscal 2015 third-quarter revenues (ended February 28, 2015) improved eight percent comparatively to $667 million. But the bottom line improved dramatically. Net earnings attributable to the company grew 13.5% to $62.6 million, while earnings per diluted share improved 22% to $0.93.
Most of the company’s merchant payment services are located in the U.S. and Canada, where the latest quarter produced 10% comparable revenue growth.
In Europe, the company’s sales were flat in the most recent quarter, but Asia/Pacific sales saw a dramatic increase improving 24% to $53.5 million.
This fiscal year, Global Payments maintained its sales growth expectation for an 8%–10% improvement over fiscal 2014. Diluted earnings per share should see a 16%–18% gain.
Institutional investors bid the stock to a new record-high after its latest quarterly earnings. This position has proven to be worth accumulating on major price retrenchments.
Palo Alto Networks Benefiting from Momentum in Cybersecurity
About twice the size of Global Payments is Palo Alto Networks, Inc. (PANW). This is a much faster-growing enterprise falling in the special situations category.
Institutional investors are all over this stock, but it retains a meaningful amount of insider share ownership, which has its advantages.
Palo Alto Networks is benefitting from momentum attributed to cybersecurity stocks. Institutional investors love this sector because it’s generating double-digit growth.
This company sells firewall technology, hardware, and software to corporate and government customers. It’s a good business to be in these days.
In its first fiscal quarter of 2015, Palo Alto Networks produced a 50% comparable sales gain to a record $193.2 million. Management noted that enterprise customers are spending once again on information technology (IT) security. This business is still producing a net loss, but its growth prospects are robust. The company has solid expectations for upcoming periods; it also has a ton of cash in the bank.
This is still a market where institutional investors, the clear driver of share prices, will pay for earnings growth and relative earnings certainty. While the broader market is without a trend, its existing winners still have the momentum.