I can’t say I’m crazy about the way credit-card processor Global Payments (NYSE:GPN) has handled the security breach it reported last Friday, though it may offer investors an opportunity to capitalize on the news.
On the down side, the company took its time in making the announcement. I can understand waiting until all the information was available, but things like this should be reported as quickly as possible.
There’s a discrepancy between the date the credit-card companies said the breach occurred and when Global Payments said it happened. I don’t like that the announcement was made on the last day of the quarter, insulating the company from including major revenue impacts from that quarter’s results.
Finally, I hate the fact that the information was dumped on a Friday, halfway through the trading day. It’s entirely possible the company had none of these considerations in mind in choosing when to disclose the information, but it felt timed to create the minimal possible impact on the company while leaving everyone else in the dark for weeks.
Visa (NYSE:V) has dropped Global Payments from its PCI Compliance List, meaning it does not regard GPN as a secure vendor. How long will it take for that situation to change? How long does will the company not be able to process cards with Visa? What happens to merchants that process with Global Payments? Do they move to a different processor? To what extent has Global Payments’ image been harmed?
The good news is that data breaches seem to be becoming more commonplace. I barely raised an eyebrow at the news when I first heard it. The other good news is that no customer data appear to have been compromised in the breach. The real issue is to what extent merchants will bail on Global Payments as their processor of choice. I assume a few will, but it’s hard to say how many. In addition, a lot will depend on how people perceive Global Payments’ handling of the crisis. There may also be fines involved.
We don’t have a lot of history to go on here. Back in late 2008, Heartland Payment Systems (NYSE:HPY) experienced a massive breach in its security network and the stock lost half its value. But that crisis passed, and the company stock has since come back sixfold.
So far, GPN is down 12%. But the stock traded flat on Monday. Investors may be waiting to see how all of this plays out. I’m not crazy about betting either way here. You could get hammered on an attempted short sale, only to find that everything wraps up without much fanfare. On the other hand, perhaps this will significantly harm the company’s earnings, so you don’t want to go long.
I think it’s wise to wait for further developments. I do think that, in the long run, this will pass. I think the stock price will get hit, and that will create a buying opportunity.
I’m assuming there will be earnings revisions, but at the moment the stock trades at 13x FY 2011 earnings of $3.52. That’s right at analysts’ five-year annualized growth rate. Depending on any downward revisions and share-price impact, the stock may end up as a value play worthy of consideration.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities.