Shift4 Payments, Inc. (FOUR)

Earnings were definitely not perfect but had certain things that were very encouraging and that portray that the thesis is intact (or even trending better than expected). Let’s start with an overview of the quarter. The headline numbers were pretty good: strong beats across the board:

* Revenue of $1.3 billionbeat estimates ($1.24 billion) by 5%

* Adjusted EPS of $1.32 beat estimates ($1.25) by 6%

* Adjusted EBITDA of $284 million beat estimates ($275 million) by 3.3%

* GRNLF of $624 million beat estimates ($614.34 million) by 16%

One would’ve (incorrectly) thought that these metrics would’ve been enough for a stock like Shift4 to do well, but the market thought otherwise. [...]

If one only reads the above, the stock drop might not make any sense if one thinks that Shift4 doesn’t have a balance sheet problem, but let’s take a look at the guide. Management lowered the guide by $40 million at the midpoint, which they divided between a $25 million impact from the Middle East and $20 million of further FX headwinds. This means that, on an FX-neutral basis, the guide was reduced by 100 basis points.

While not great, it doesn’t seem like anything thesis breaking when considering that the Middle East impact promises to be temporary and is consistent with what other businesses have reported. [...] I think it’s a bit too much, especially considering that other payment peers are reporting similar issues with no apparent negative stock market reactions.

So, just to summarize, I don’t think earnings were perfect, but I don’t think they deserved a 20% drop either. Management (imho) should be a bit careful with expectations management considering that they are currently categorized in the “losing” bucket by the market, a market that believes that Shift4 has a balance sheet problem. This said, with buybacks still to be done and free cash flow generation improving significantly in H2, one can’t deny that they might be able to turn this volatility in their favor.