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Investing.com -- Raymond James downgraded Global Payments and Fiserv to Market Perform from Outperform in a note on Thursday, citing a broader recalibration in the fintech sector following years of multiple compression.
Analyst Madison Suhr wrote that the average next-twelve-month P/E for the group now stands at roughly 11x, “a nearly 45% decline since 2022 (~40% below 2023),” reflecting slower organic growth and greater investor focus on earnings quality.
Suhr noted that organic revenue growth is the “North Star” for the payments sector, given its high incremental margin flow-through.
“The single most important metric broadly across our coverage universe is organic revenue (or organic net revenue/GP $) growth, given the relatively fixed cost structure,” she said, adding that the relationship between P/E multiples and organic growth shows a strong correlation with an R-squared of 0.65.
Earnings quality has also influenced valuations. Raymond James measured GAAP EPS as a percent of adjusted EPS across the sector and found an R-squared of 0.57 with multiples, highlighting the market’s preference for companies with more transparent earnings.
The analyst attributed slower growth to macro and industry factors, including “greater domestic cash-to-card penetration… moderating PCE growth, increased competition, and greater adoption of secular tailwinds,” which have reduced the incremental upside in volumes compared with prior years.
Suhr stated that the rating changes reflect these realities and the sector’s near-term outlook.
“For the broader space to meaningfully outperform and see multiple expansion, we think the macro backdrop and PCE need to accelerate, which we view as unlikely in the near-term.”