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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