First Data Is Bank Of America's 'Great Value Idea' For 2018

Global payment technology solutions provider First Data Corp FDC, having lagged the comparable group by 2,500 basis points in 2017, is likely to see a reacceleration in growth in 2018, according to Bank of America Merrill Lynch. 

The Analyst

BofA Merrill Lynch analyst Jason Kupferberg upgraded First Data from Neutral to Buy and increased the price target from $19.50 to $20.50.

The analyst named the stock as his "Great Value Idea" for 2018.

The Thesis

First Data's North American Global Business Services segment, which accounts for 40 percent of total revenues, could see reacceleration in 2018, Kupferberg said in a Thursday note. (See the analyst's track record here.) 

The improvement could come about from "modest and gradual improvement in the bank JVs," as the company enacts rehabilitation strategies and benefits from easier comps — and its recent BluePay and CardConnect acquisitions, the analyst said. 

BofA projects 7.3-percent year-over-year growth for the North American GBS segment in 2018, faster than the 2-percent growth seen in 2017. This could lead to multiple expansion, Kupferberg said. 

First Data's de-leveraging plans are on track, as it continues to target 4x leverage by the end of 2019, which would be in-line with comps, according to BofA. U.S. tax legislation could have a mixed impact on the company, although it isn't likely to have any impact on free cash flow over 18-24 months, Kupferberg said. 

First Data shares are trading at a discount to the comps, and BofA views the risk-reward profile as attractive, the analyst said.

The Price Action

First Data shares have gained over 19 percent over the past year.

The stock was up 0.62 percent at $17.71 at the time of publication. 

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