Payments Industry is gaining traction from trends like modernizing the payments infrastructure, ramping up collaborations as well as merger and acquisition (M&A) activity plus enhancing customer experiences. The use of advanced, cutting-edge technology leading to safe and quick payments also attracted consumers. With evolving requirements of the market, the industry is growing by leaps and bounds.
The Financial Transaction Services sector, placed within the top 42% of the 16 Zacks sectors, has surged 43% year to date, outperforming the S&P 500 Index’s gain of 14.5%.
One of the major factors behind a boom in the payments services industry is the increase in usage of cards for retail sales. In July 2019, the U.S. retail trade inched up 0.7% following a 0.3% uptick in June per the Department of Commerce. This rise reflects consumer optimism, which in turn, will favor the payment services industry players. Retail sales drives card processing as customers are now comfortable with online transactions, given the convenience, speed, flexibility and ease it provides. Moreover, cards are more secure to carry compared to cash.
Other Major Factors Driving This Industry
Enhanced Payment Options: With the usage of advanced technologies, such as distributed ledger technology, cryptocurrencies, IoT, blockchain, etc., customers now get a lot of payment options at their disposal. Moreover, initiatives taken by the companies to modernize payments will likely reduce payment processing fees, which are an advantage for the users. Companies are consistently finding ways to provide real-time payments to customers.
M&A Activity: The industry players are also aggressively taking up mergers and acquisitions activity in order to improve scale and get a competitive edge. These deals are mainly targeted at expanding and resolving issues in friction areas like cross-border payments. There are many transactions wherein the acquirer gains from the acquired company’s abilities, business model and skills necessary for striving in this highly competitive market.
For example, Global Payments Inc. GPN is due to complete the acquisition of Total System Services, Inc. TSS by the fourth quarter of this year, which will give it a significant exposure to the fast-growing markets globally with physical and virtual presence in more than 100 countries. The company also expanded its open software portfolio with the acquisitions of AdvancedMD and SICOM.
Data Analytics: Players are also turning to advanced data payment analytics. The early adopters are also being able to enrich customers’ experience. The advanced data analytics is also assisting the companies to understand the financial risk if any and study customer choices plus preferences. Real-time transaction graph aids providers to control service levels, manage inventory, etc.
Payments Industry Set to Thrive
All the aforementioned points show that the payments industry is well-poised for growth with plenty of opportunities. There are underpenetrated markets, which hold growth potential for the leading players. Use of cutting-edge contactless technology, blockchain method, biometric, modernization of payment infrastructure, etc. bode well for the industry.
Stocks on Watch List
Considering that the aforesaid sector is expected to gain, picking stocks from the same will be a smart move. Thus, we have selected four stocks that holds potential to reap benefits for investors in the second half of 2019. Notably, these companies performed well in the first half of the year and are expected to retain the momentum in the second half as well. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Mastercard Inc. MA has a Zacks Rank #3 (Hold) and provides transaction processing and payment-related products and services in the United States as well as across the globe. It witnessed a 0.1% upward revision in 2019 earnings estimates over the past 60 days.
Mastercard’s revenues witnessed a CAGR of 13% from 2010 to 2018. The same was up 15% in the first half of 2019. We believe that the company should retain its revenue momentum in the coming quarters on the back of its strong market position and an attractive core business that continues to be driven by new deals, renewed agreements and an expansion of service offerings.
The company’s expected earnings growth rate for the current year is 17.3% compared with the industry’s estimated rally of 9.3%. In a year's time, the company has jumped 32.6%, outperforming its industry's increase of 22.9%.
Global Payments is a leading player in the payments industry, providing payment technology and software solutions, and credit and debit card transaction processing. The Zacks Consensus Estimate for its current-year earnings has moved 0.5% north over the past 60 days.
The company witnessed a revenue CAGR of 11% from 2008 to 2018. The top line should further see an upside from a strong market position and a lucrative core business that will be steadily driven by new deals, renewed agreements, accretive acquisitions and an extension of service offerings. The company’s expected earnings growth rate for the current year is 17.3% compared with the industry’s projected rise of 9.3%. In a year’s time, the stock has gained 35.2%. Global Payments carries a Zacks Rank of 3.
FleetCor Technologies, Inc. FLT is a global provider of fuel cards, commercial payment and data solutions, lodging and transportation management services, stored-value solutions and workforce payment products and services to businesses, retailers, commercial fleets, major oil companies, petroleum marketers and government entities.
The company’s top line has gained from expanded volume and revenues per transaction in certain payment programs. Organic revenue growth was 10%, 9% and 8% in 2018, 2017 and 2016, respectively. For 2019, the company continues to expect 9-11% organic growth.
It holds a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has been raised 0.3% over the past 30 days. The company’s predicted earnings growth rate for the current year is 11.3% compared with the industry’s estimated increase of 9.3%. In a year’s time, the stock has gained 36.4%.
Visa Inc. V leads the payments space with the highest volumes of transactions processed. Its numerous discreet acquisitions and alliances plus technology upgrades and effective marketing have paved the way for long-term growth and a constant improvement in revenues. The consolidation of Visa Europe is a long-term growth strategy for the company. Its international business has been burgeoning and adds diversification benefits. Visa is well-poised to gain traction from the growing electronic payment processing and a solid brand name. Its solid capital position facilitates business investments.
This Zacks #3 Ranked stock has witnessed a 0.6% upward revision in 2019 earnings estimates over the past 60 days. The company’s earnings growth rate for the current year is envisioned to be 17.1% compared with the industry’s 9.4% rise. In a year’s time, the stock has rallied 25.6%.
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FleetCor Technologies, Inc. (FLT) : Free Stock Analysis Report
Total System Services, Inc. (TSS) : Free Stock Analysis Report
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