First Data A Turnaround Story? Morgan Stanley Thinks So

• Shares of First Data Corp FDC have appreciated 7.3 percent over the last one month to a high of $17.11 on November 6.
• Morgan Stanley’s Smittipon Srethapramote has initiated coverage of the company with an Overweight rating and price target of $22.
• Srethapramote mentioned that the new management team has driven a meaningful transformation at the company, positioning it to return to “near-industry growth rates.”

Analyst Smittipon Srethapramote said that although the company “lost momentum after its 2007 LBO, which burdened it with high-cost debt just before the great recession,” First Data has made meaningful progress following the management revamp in md-2013 and the “equity injection” worth $3.5 billion in mid-2014.

These factors have allowed to company to repay some of its high cost debt, while reinvesting in growth.

According to the Morgan Stanley report, “Success with some of these growth initiatives, plus the ability to reduce its interest burden through deleveraging and refinancing, could deliver further upside vs. market expectations.”

First Data has invested in various initiatives that Srethapramote believes could position the company to potentially accelerate revenue growth. Some of these initiatives include the Clover IPOS solution, expanding the STAR network into the signature debit market and expanding into the Brazilian merchant acquiring market, among others.

“We expect interest expense to be significantly reduced from refinancing activity YTD, which should help drive outsize EPS growth. We would expect FDC to deploy a large part of its excess FCF to pay down debt,” the report added.