Digital Payments Expansion And AI Investments Will Support Steady But Constrained Progress

Catalysts

About EVERTEC

EVERTEC provides payment processing, merchant acquiring and business solutions across Puerto Rico and multiple Latin American markets.

What are the underlying business or industry changes driving this perspective?

• While digital payments adoption in Puerto Rico and across Latin America supports higher transaction volumes, the requirement to absorb a 10% discount on services to Popular and higher cloud and POS repair costs can limit operating leverage. This may keep adjusted EBITDA margins around the current 40% range rather than expanding meaningfully.
• Although client wins such as Banco de Chile and Grupo Aval point to broader regional adoption of electronic payments, the need to implement these large projects and support one of the strongest pipelines management has seen can require sustained investment in delivery capacity. This may cap near term earnings growth relative to revenue growth.
• While acquisitions such as Sinqia, Tecnobank and the planned Dimensa deal increase exposure to software and payments in Brazil, integrating several businesses, realizing cross sell potential across more than 15,000 clients and managing different tax profiles could pressure net margins even if consolidated revenue moves higher.
• Although EVERTEC is embedding AI into risk management, fraud monitoring and credit decisioning and has trained more than 4,500 employees, the upfront CapEx of US$91.5 million in 2025 and ongoing AI and platform modernization spend may delay any material improvement in free cash flow conversion and earnings per share.
• While more than 40% of revenue is expected to come from outside Puerto Rico and Latin America Payments & Solutions is projected to grow in the low to mid 20s in 2026, the lower margin profile of this segment compared with Puerto Rico and the reset in Business Solutions from the 10% Popular discount can weigh on overall margin mix and limit upside to adjusted EPS.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on EVERTEC compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming EVERTEC's revenue will grow by 9.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 13.9% today to 13.2% in 3 years time.
• The bearish analysts expect earnings to reach $166.3 million (and earnings per share of $2.78) by about July 2029, up from $132.6 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $233.9 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.5x on those 2029 earnings, down from 13.8x today. This future PE is lower than the current PE for the US Diversified Financial industry at 15.7x.
• The bearish analysts expect the number of shares outstanding to decline by 3.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.23%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Latin America Payments & Solutions delivered 22% revenue growth in 2025 on a constant currency basis, with double digit organic growth across the region and a 2026 outlook in the mid 20s. EVERTEC is entering 2026 with what management describes as one of its strongest pipelines in years, so stronger than expected execution on this long term expansion could lift revenue, adjusted EBITDA and earnings above levels that would be consistent with an unchanged share price.
• EVERTEC is expanding in Brazil through acquisitions such as Sinqia, Tecnobank and the planned Dimensa purchase, which adds access to more than 15,000 clients and new verticals such as insurance. If cross sell efforts and platform modernization continue to gain traction, the long term effect could be higher revenue scale and operating leverage, supporting higher net margins and earnings than an essentially flat share price might imply.
• Management reports that more than 40% of revenue is expected to come from outside Puerto Rico in 2026 and highlights double digit growth in ATH Móvil volumes and transactions. If secular adoption of digital payments in Puerto Rico and across Latin America remains strong, higher transaction volumes and usage of EVERTEC platforms could drive sustained growth in revenue and adjusted EBITDA that may not align with a stagnant share price view.
• The company is embedding AI into risk management, fraud monitoring, credit scoring and software development, with over 4,500 employees already trained and evidence of shorter engineering and quality assurance cycles. If these initiatives continue to improve productivity, delivery capacity and product performance over several years, the result could be stronger free cash flow conversion and earnings than expected in a flat share price scenario.
• EVERTEC is actively using its balance sheet and share repurchase program, with net debt to adjusted EBITDA around 2.08x, US$490.4 million in liquidity and authorization to repurchase up to US$150 million of stock through 2027. If ongoing M&A plus buybacks continue to reduce the share count and increase earnings per share over time, the combined effect on EPS and investor perception of capital discipline could support a higher share price rather than one that remains unchanged.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for EVERTEC is $25.0, which represents up to two standard deviations below the consensus price target of $31.0. This valuation is based on what can be assumed as the expectations of EVERTEC's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $40.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $1.3 billion, earnings will come to $166.3 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 8.2%.
• Given the current share price of $29.63, the analyst price target of $25.0 is 18.5% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.