Leveraged buyouts can sometimes work great but too many times they leave the company with too much debt. First Data is one of those deals where buyouts and acquisitions have left the company with a serious debt load that is drowning the stock.
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FDC - First Data - Company Profile
First Data provides electronic ecommerce solutions for merchants, financial institutions and card issuers worldwide. The operate in three segments including global business solutions, global financial solutions and network & security solutions. This includes retail point of sale solutions, mobile ecommerce solutions and webstore solutions.
In their Q1 earnings they grew revenue 3% and operating income rose from $185 to $220 million. Earnings of 24 cents were slightly above expectations for 21 cents. Revenue of $1.69 billion was below estimates for $1.71 billion. Unfortunately, FDC has $19 billion in debt compared to its $3 billion market cap. Interest expense in the first quarter was $263 million or more than $1 billion a year.
Global business solutions revenue declined in the quarter while financial solutions and security solutions showed only marginal growth.
Earnings July 21st.
While the company tried to put a positive face on the future by projecting revenue growth, it appears investors were not impressed. Shares have fallen from $13.50 to $10.50 over the last three weeks since earnings. FDC does not provide guidance and that is troubling to some investors.
I am anticipating a retest of the post IPO low at $8.50 or even worse, depending on the market.
Sell short FDC shares, currently $10.67, initial stop loss $11.85
Buy Long July $10 put, currently $.65, no initial stop loss.