In a research note issued on Thursday, Raymond James trimmed its ratings on Global Payments and Fiserv, moving both names from Outperform to Market Perform. The change reflects what the firm describes as a broader recalibration in the fintech and payments sector after several years of multiple compression.
Analyst Madison Suhr pointed to a marked decline in group valuations, writing that the average next-twelve-month P/E for the coverage universe now stands at about 11x - "a nearly 45% decline since 2022 (~40% below 2023)." Suhr linked this drop to a combination of slower organic revenue growth and an increased investor emphasis on the quality of reported earnings.
Suhr emphasized the centrality of organic revenue growth in the payments industry, noting its outsized impact on profitability because of the sector's relatively fixed cost base. "The single most important metric broadly across our coverage universe is organic revenue (or organic net revenue/GP $) growth, given the relatively fixed cost structure," she wrote, adding that the relationship between P/E multiples and organic growth is strong, with an R-squared of 0.65.
The analyst also said earnings quality has become a meaningful driver of valuation differences across companies. Raymond James measured GAAP EPS as a percentage of adjusted EPS across the sector and observed an R-squared of 0.57 with multiples, a result the note described as evidence that markets favor firms with cleaner, more transparent earnings.
On the question of why growth has moderated, Suhr attributed it to both macro and industry dynamics. Specifically, the note cited "greater domestic cash-to-card penetration... moderating PCE growth, increased competition, and greater adoption of secular tailwinds," factors that, in combination, have lessened the incremental upside in transaction volumes compared with prior years.
Those conditions underpin the rating shifts, according to the firm. "For the broader space to meaningfully outperform and see multiple expansion, we think the macro backdrop and PCE need to accelerate, which we view as unlikely in the near-term," Suhr wrote.
Contextual note: The changes apply specifically to Global Payments and Fiserv and reflect Raymond James' current view of sector-level valuation dynamics rather than company-specific operational announcements.