2 Reasons First Data Was Just Upgraded By BMO Capital

Shares of First Data Corp FDC have pulled back since its third quarter earnings report, which prompted some analysts to become more constructive on the stock.

The Analyst

BMO Capital Markets' Paulo Ribeiro upgraded First Data's stock from Market Perform to Outperform with a price target raised from $19 to $21.50.

The Thesis

First Data's stock has lost around 12 percent since its third quarter results and is now "attractive," Ribeiro said in a Sunday upgrade note. The bullish case for owning First Data's stocks is twofold, the analyst said:

• A more visible path for global business solutions to reach industry level growth levels.
• A higher valuation from improved net operating losses moving forward on normalized GAAP tax rate.

First, the GBS North American segment represents 44 percent of the entire company's revenue and there is a "credible path" to achieve a mid-single digits growth rate in fiscal 2019, Ribeiro said. That path is a recovery in JV and SMB channels, and a high-teens growth rate contribution from the recently created integrated payments channel, he said. 

Second, the analyst's valuation of the fintech company on an EV/EBITDA basis now values the company's net operating loss carry-forwards, or NOLs, at $1.25 per share, which marks an increase from 50 cents.

The improved valuation is mostly due to expectations that the reversal of valuation allowances will take place sooner than expected, according to BMO. First Data has yet to record any federal book taxes in the U.S., and the deferred tax asset could be used to offset any pretax income, likely through fiscal 2020, Ribeiro said. 

Price Action

Shares of First Data have gained 18 percent since the start of 2017 and are up 4.6 percent since the company's 2015 IPO.

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