Shift4 Payments' Transition To Full Stack Provider To Boost Gross Profit Per Share, Says Analyst

  • Stephens analyst Charles Nabhan initiated coverage on Shift4 Payments Inc FOUR with an Equal- Weight rating and a price target of $80
  • The analyst view factors in premium share valuation of 13.6x 2024 EV/EBITDA compared to its peer group median of 9.1x.  
  • He notes that FOUR's current revenues are driven by its core verticals (hotel, restaurant) and expects Finaro acquisition to enhance its processing capabilities in Europe.  
  • Nabhan believes FOUR has successfully leveraged its gateway relationships to achieve higher market share by discounting through its SkyTab offering. He expects this to support above-peer growth during an economic downturn. 
  • Nabhan has confidence in the 2023 outlook, which reflects management's strong execution track record in 2022, efficient Gateway sunset strategy and accelerated digitization of restaurant/hotel industries.
  • The analyst sees FOUR's transition to a full stack provider from a legacy processor agnostic gateway as in the initial stage. He expects this to boost gross profit per share by 4x and contribute around half of the volume growth. 
  • The analyst sees the scope of conversion of FOUR's Gateway Only volumes of around $150 billion (yields $0.04 per transaction) to enterprise-to-enterprise volume. He expects the conversion to yield 50 bps per transaction and assumes a volume conversion of $15 billion-$20 billion annually.
  • Going forward, the analyst sees the ability of restaurants to pass along higher costs to a weakening consumer amid an unfavourable macroeconomic environment as a matter of concern.
  • Price Action: FOUR shares traded lower by 2.90% at $70.91 on the last check Friday.
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