Major European Fintech with 36% Upside?

Euronet Worldwide (NASDAQ: EEFT) isn’t particularly well-known on US shores but it sits at the intersection of financial technology and the growing demand for cross-border transactions.

If you’re not already familiar with the firm it has a pretty diverse portfolio of financial technology services that encompass ATMs, point-of-sale terminals, electronic funds transfer, and digital payment solutions.

You can break the company down into three major divisions. The EFT Processing division manages a vast network of ATMs and POS terminals across Europe, the Middle East, and Asia, and that base supports ongoing and predictable recurring revenues.

The ePay division makes digital transactions possible. These include things like mobile top-ups, bill payments, and gift cards, and for the most part cater to developed markets where digital payment adoption is high.

The third division is the Money Transfer one that delivers cross-border remittance services through Ria Money Transfer, which is one of the largest players in this rapidly growing sector.

All three of these combined mean Euronet captures value across numerous facets of the financial services landscape and so it sits firmly as a leader in both traditional and digital payment systems.

Key Points

• Euronet’s 55,000+ ATMs, ePay, and Ria Money Transfer create recurring revenues and strong barriers to entry.
• With 9.5% revenue growth in Q3 2024 and a low P/E of 13.1x, analysts project 36% upside and robust earnings growth.
• Expansion in underbanked regions and digital payments drives growth, though competition and shifting cashless trends pose challenges.

55,000 ATMs Produce Wide Moat

Euronet enjoys what Warren Buffett might describe as a wide moat thanks largely to its scale. For example, it has under its corporate umbrella an extensive network of over 55,000 ATMs that produce dependable revenues while simultaneously ensuring a vast reach in key markets.

The ePay and money transfer businesses enjoys another moat characteristic, that being network effects because greater participation within its ecosystems attracts even more users.

Management are also well versed and arguably maestros at navigating complex regulatory frameworks across multiple countries, which in turn creates substantial barriers to entry for competitors.

A final consideration is the extensive and historic partnerships with banks and retailers that allow Euronet to integrate seamlessly into existing financial ecosystems, further strengthening its position.

1.1 Billion Reasons to Own Euronet

One aspect of Euronet that has attracted investors is how consistent revenues have been through up and down economic cycles.

In Q3 2024, management reported to the street revenues of $1.099 billion, a 9.5% increase compared to the same period the year prior. This uptick in the top line led to an operating income of $182.2 million, also up 9% year-over-year.

Adding to the healthy margins, even amid challenging macroeconomic conditions are strong free cash flows that facilitate ATM network expansion.

What’s Going to Spark EEFT Share Price Higher?

Underbanked regions are a real opportunity for Euronet to make waves, especially in regions like Southeast Asia and Africa, where demand for ATMs, POS terminals, and remittance services are likely to surge.

The ePay segment is tethered to the rise in mobile and digital payments in developed markets where consumer preferences are increasingly shifting toward cashless transactions.

Another tailwind emanates from the growth in the global remittance market set to compound at an annual growth rate of 7% over the next five years. As this takes effect, significant opportunities for Ria Money Transfer, Euronet’s cross-border remittance business, should start to be seen in the financials.

Interestingly, where Euronet struggles to grow organically, it’s not shy to be acquisitive, such as the purchase of an ATM network in Malaysia.

36% Upside Opportunity

Euronet Worldwide’s price-to-earnings ratio of currently a very modest 13.1x, which all by itself hints at undervaluation but especially so when net income growth of 12.4% is forecast over the next 5 years.

On $3.9 billion in revenues, Euronet is currently posting $330 million of net income, and the top line is slated to grow at 5.9% over the next 5 years too.

It’s not a surprise to see that strong cash flows also favor new buyers now with a discounted cash flow forecast revealing upside to $136 per share.

The attractive valuation figures imply that quite possibly the market is not fully pricing in Euronet’s long-term growth prospects, especially in its EFT and money transfer segments. The bottom line is Euronet is in a good spot to outperform in both revenue growth and profitability over the next five years.

What Arrows Are Pointed At Euronet?

While there’s lots to like about Euronet’s business model, countries like India are rapidly shifting toward cashless transactions, and that has the very real potential of denting ATM usage, a key revenue driver for Euronet’s EFT division.

Digital payment and remittances are also a very competitive space with the likes of PayPal and Wise dominating in user-friendly, tech-driven solutions that appeal to younger users.

It’s believed that many of these competitors operate with lower costs, and so make them formidable adversaries in regions where Euronet is trying to make a play with its ePay and Ria services.

Eastern Europe and the Middle East are also hot zones that threaten ATM network or remittance flows disruption more so than some historically stabler regions.

Currency fluctuations present another challenge to contend with, especially as Euronet derives a substantial portion of its revenues from regions with volatile currencies.

Is Euronet Worldwide Stock a Buy?

The consensus estimate among 8 analysts is that Euronet Worldwide stock has upside to $125 per share.

With annual revenues exceeding $4 billion and a network of over 55,000 ATMs, management has constructed a very sound recurring cash flow business with a wide moat.

A part of it stems from Ria Money Transfer as the second-largest global remittance provider in a market, which is forecasted to grow at a 7% CAGR through 2028.

The shift toward cashless payments is also a strong tailwind likely to help ePay. Indeed analysts are upbeat about the share price over the next few years as anticipated earnings growth starts to be more widely known and realized.

All in all, Euronet is an appetizing combination of stability, profitability, and growth potential that should handsomely deliver market-outperforming returns in the years to come.