The Financial Transaction Services sector, placed within the top 16% of the 16 Zacks sectors, has increased roughly 23.5% so far in the year, outpacing the S&P 500 composite’s growth of approximately 7.3%. Higher consumer spending led by a strong labor market, rising disposable income and an upbeat consumer environment are working in favor of the sector.
Further, any cut in the benchmark interest rate at this juncture will ramp up investment activities and reinforce consumer spending, thereby leading to a rise in payments. Since payments are increasingly being made via cashless modes, payment processors in the entire payment ecosystem stand to gain.
We note that consumer spending — which accounts for more than two-thirds of U.S. economic activity — has picked up pace in recent months. This is evident from an uptick of 0.5% in retail sales during May, following an upwardly revised reading of 0.3% in April. This dissipates the fear of losing economic steam to a certain degree.
Meanwhile, payments are shifting modes from cash to other easier, safer, quicker, cheaper alternative mediums, such as credit/debit cards, mobile payments, online et al.
Per Statista, in 2018, online sales of physical goods amounted to $504.6 billion and are projected to surpass $735 billion in 2023. Apparel and accessories retail e-commerce in the United States is estimated to generate in excess of $138.7 billion in revenues by 2022.
This spurt in online and ecommerce sales should fuel the usage of alternative modes of payments. Nevertheless, the usage of these new payment modes are not just confined to online and e-commerce sales. Owing to the ease and flexibility that these modern payments offer, shoppers are availing of the same to make payments while purchasing at the brick and mortar stores.
Among these payment methods, credit cards hold the prime importance. Per a Statista survey, in 2018, nearly 62% of online transactions was made via credit and other cards of which credit card was mostly preferred. One of the factors favoring credit cards, when making holiday purchases, is earning rewards. However, the speed, ease and flexibility delivered by electronic payment modes cannot be overlooked. Also, mobile payment trend is being widely adopted by the younger generation.
This clearly points to the fact that a shift to the digital mode of payments will steadily catch up with demographic changes. Companies in this space have already sensed this and are consistently investing billions of dollars in their systems, procedures and networks.
Though the payments space is dynamic and requires the application of cutting-edge technology (involving huge expenditure) by companies to provide a superior, cost-effective, secured service to customers, opportunities for growth are aplenty in the industry as cash is still a dominant means of payment in many markets and geographies. These underpenetrated markets promise immense growth potential for the established players with their robust payment networks.
Artificial intelligence, blockchain technology, biometric and contactless technology will further revolutionize the industry. Thus, the industry bigwigs are staying abreast of technical breakthroughs to enable them to fly high.
Here we have highlighted four stocks that have rallied more than 25% year to date and look well poised, based on their sound fundamentals and earnings growth prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Global Payments, Inc. GPN is the country’s fifth-biggest merchant acquirer, helping businesses handle credit and debit card payments. The company’s stupendous performance, driven by its vociferous inorganic growth strategy, has yielded results by expanding its scales, size, geography, business and product portfolio. Its growth graph should get even better going forward, courtesy of the acquisition of Total Systems, which will create huge synergies for the merged entity.
The Zacks Consensus Estimate for its current-year earnings has inched 0.5% up over the past 60 days. The company’s expected earnings growth rate for the current year is 16.6% compared with the industry’s anticipated ascent of 13%. Year to date, the stock has soared 56%. It carries a Zacks Rank #2 (Buy).
Mastercard Inc. MA is poised for growth, given its solid market position, ongoing expansion and digital initiatives, plus opportunities from the transition toward electronic payments. Its numerous buyouts have aided revenue growth. For the last many quarters, the company has been benefiting from higher switched transactions, expansion in cross-border volume and gross dollar volume, and uptrends from integrations, partly offset by a climb in rebates and incentives. A strong balance sheet also enables business investment, thereby contributing to growth.
This stock with a Zacks Rank of 2 has witnessed a northward movement in 2019 earnings estimates by 0.4% over the past 60 days. The company’s earnings growth prediction rate for the current year is 17.1% compared with the industry’s growth of 12.8%. Year to date, the stock has surged 40%.
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 #2 Ranked stock has witnessed an 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 16.5% compared with the industry’s growth of 12.8%. Year to date, the stock has augmented 31.4%.
Euronet Services Inc. EEFT is an industry leader in providing secure electronic financial transaction solutions. The company offers financial payment middleware, financial network gateways, outsourcing and consulting services to financial institutions and mobile operators.
Its sturdy position is backed by stable expansions across the globe through strategic takeovers, and impressive results of the Electronic Funds Transfer and Money Transfer segments. Its revenue base has been inflated over the past few years on the back of its diversity across products and geographies. Its healthy balance sheet boosts investment in business.
This stock with a Zacks Rank #3 (Hold) has seen a northbound revision in 2019 earnings estimates over the past 60 days. The company’s earnings growth rate for the current year is forecast at 25.5% compared with the industry’s growth of 9.4%. Year to date, the stock has jumped 57.7%.
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