Vantiv Added To Stifel's 'Select List' Following WorldPay Acquisition

Following the announcement, Stifel added shares of Vantiv to the Stifel Select List, citing its belief that the stock represents one of the most attractive risk/reward opportunities across it coverage.

Accordingly, Stifel upgraded shares of Vantiv from Hold to Buy and increased is price target for the shares from $63 to $85. Meanwhile, delving on the deal as well as the quarterly results reported by Vantiv, Baird maintains its Outperform rating and lifted its price target from $72 to $80.

After adding 3.1 percent Wednesday, Vantiv's shares were up an incremental 3.78 percent to $69.60 in Thursday's session.

Best Strategic Fit

Underlining the strategic fit, Stifel analysts John Davis and Joab Dempsey said they don't see any two businesses that fit together in payments than Vantiv and WorldPay. The deal provides Vantiv with an international presence as well as an industry leading e-commerce acquiring platform, the analysts said.

Additionally, the analysts see the deal as providing Vantiv with access to the SMB segment, helping to diversify away from its large merchant exposure, thereby helping it to be insulated against Amazon.com, Inc. AMZN's crosshairs.

"Combined, the company will become the undisputed leader in global acquiring and potentially significant revenue synergies coupled with scale benefits should create meaningful shareholder value over time, in our view," the analysts said.

See also: Why Amazon's Purchase Of Whole Foods Will Be A Slight Negative For Vantiv

Dilution Worries Mitigated

Stifel is of the view that the transformative acquisition of WorldPay is a strategic homerun. Given the longer-term growth opportunities, the firm sees multiple expansion in addition to the modest accretion. The firm noted that the worries over potential dilution have been mitigated by the recently announced $1.3 billion buybacks and higher than anticipated cost saves.

The firm estimates 2–3-percent accretion in 2019 and mid-single-digit accretion in 2020. Though modest, the firm believes the positive bottom line impact has been responsible for the recent noticeable improvement in sentiment.

Discount With Global Payments To Close In

The firm expects the 10 percent discount Vantiv has with its rival Global Payments Inc GPN to close in relatively short order due to its newly acquired e-commerce platform and scale advantages.

As such, Stifel believes both Vantiv and WorldPay are Class A assets that investors want to own and that Vantiv's year-to-date underperformance versus peers should revert, as investors understand the longer-term benefits.

We Like The Deal And The Stock

Meanwhile, Baird analyst David Koning said he liked the deal, as it increases exposure to fast-growing channels and offers revenue synergies over time. The analyst said the deal gives e-commerce exposure of up to 20–25 percent compared to 10 percent previously, with the three high-growth channels accounting for nearly 50 percent of the total revenues.

The deal is expected to close in early 2018 and be modestly dilutive in 2018, though becoming accretive in 2019, the analyst noted. The analyst expects the combined company to grow around double digits.

On Vantiv's second quarter results, Baird said the results were better than feared, as it reestablished the beat and raise pattern. The firm noted that the 2017 revenue guidance was raised to the upper half and earnings per share guidance was raised, primarily due to the big buyback of Fifth Third Bancorp FITB shares.

Net-net, Baird increased its 2017 earnings per share estimate for Vantiv from $3.25 to $3.34 due to the buybacks but lowered its 2018 earnings per share estimate from $3.60 to $3.55 due to WorldPay dilution.

Baird said it likes Vantiv stock a lot due to the reestablishment of the beat and raise mode and its expectations that sentiment can improve further, given the fact it could have the fastest organic revenue growth of the group over the next three years.

The firm expects 10-percent revenue growth and 15-20+ percent earnings per share growth for several years. Additionally, the firm sees upside potential from synergies, buybacks, tax as well as interest.

At last check, shares of Vantiv were up 3.03 percent at $69.13.