Zacks Industry Outlook Highlights Visa, Mastercard, Fidelity National, Global Payments and Equifax
For Immediate Release
Chicago, IL – August 9, 2023 – Today, Zacks Equity Research discusses Visa Inc. V, Mastercard Inc. MA, Fidelity National Information Services, Inc. FIS, Global Payments Inc. GPN and Equifax Inc. EFX.
Industry: Financial Services
Link: https://www.zacks.com/commentary/2133601/5-financial-transaction-stocks-in-focus-amid-steady-consumer-spending
The Financial Transaction Services industry is expected to benefit from expanding transaction volumes resulting from the widespread adoption of digital means. An advanced digital solutions suite, built on mergers and acquisitions as well as tech investments, equips players to capitalize on a booming digital era. Signs of subsiding inflation might pave the way for increased consumer spending in the days ahead.
Recovery in travel is likely to drive cross-border volumes. Companies like Visa Inc., Mastercard Inc., Fidelity National Information Services, Inc., Global Payments Inc. and Equifax Inc. are well-placed to gain from the industry’s encouraging growth prospects.
About the Industry
The Zacks Financial Transaction Services industry is part of the Financial Technology or the FinTech space, which includes companies with varying natures of businesses. The industry comprises card and payment processing and other solutions providers, ATM services and money remittance service providers, and providers of investment solutions to financial advisors.
The players in this segment operate their unique and proprietary global payments network that links issuers and acquirers around the globe, facilitating the switching of transactions and permitting account holders to use their products at millions of acceptance locations. Monetary transactions are executed through these networks, offering a convenient, quick and secure payment method in several currencies across the globe. The industry is benefiting from the ongoing digitization movement, triggered by the pandemic.
4 Trends Shaping the Fate of the Financial Transaction Services Industry
A Booming Digital Environment: The pandemic made people aware of the hassle-free and affordable nature of contactless payments. Even after the pandemic receded, the digitization trend showed no sign of slowing down across the globe. A higher Internet penetration rate and increased usage of smartphones contribute to the increased uptake of digital payments.
In light of the prevailing scenario, it has become inevitable to build an enhanced contactless payments suite or upgrade the existing ones. For this, financial transaction services players have to often resort to technology investments that might escalate costs for them. However, owing to the long-term benefits that such investments provide, the industry players have come up with diversified contactless payment options such as mobile wallets, biometrics and QR codes.
Such initiatives will enable the players to solidify their presence in the global digital payments market, boost their customer base and diversify income streams. To counter the growing number of cybercrimes that are often associated with online payments, industry participants remain equipped with fraud prevention solutions.
Steady Rise in Consumer Spending: Improved consumer spending implies greater utilization of product and service offerings of financial transaction services players. This, in turn, offers an opportunity for industry players to process higher transaction volumes. Strong wage gains resulting from a tight labor market add to the purchasing power of consumers and subsiding inflationary headwinds boost hopes for continually rising consumer spending in the days ahead.
Also, the ease with which e-commerce shopping can be done within the comfort of one’s home is likely to provide an impetus to growth in consumer spending. According to the U.S. Bureau of Economic Analysis, in the January-June 2023 period, consumer spending in each of the months has witnessed an uptick sequentially.
Improved Cross-Border Volumes: Increased travel, whether for business or recreation, will likely boost cross-border volumes of companies in the financial transaction services space. With industrial and business activities back on track, the demand for international travel is likely to remain steady in the days ahead. Industry participants often come up with efficient business travel solutions that make flight bookings simpler. The ease of digital payments transcends the barrier between borders. Platforms backed by an interconnected banking network and sound expertise aid in the seamless processing of digital payments.
A Prudent M&A Strategy: In addition to tech investments, a merger and acquisition (M&A) strategy often becomes the means for building an efficient digital suite. The strategy also gives an opportunity to financial transaction services players to foray into new markets, expand their foothold in existing ones, broaden partner networks and increase customer base. However, interest rate hikes by the Fed to tame inflation result in higher borrowing costs.
Zacks Industry Rank Instills Optimism
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all-member stocks, indicates bright near-term prospects. The Zacks Financial Transaction Services industry is housed within the broader Zacks Business Services sector. It currently carries a Zacks Industry Rank #105, which places it in the top 42% of more than 250 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
Before we present a few stocks that you may want to buy or retain in your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Zacks Financial Transaction Services industry has outperformed its sector but underperformed the Zacks S&P 500 composite in the past year.
In the said time frame, the industry has gained 5.1% against the Business Services sector’s decline of 4.8%. The S&P 500 has gained 9.9% in the same time frame.
Industry's Current Valuation
On the basis of the forward 12-month Price/Earnings ratio, commonly used for valuing financial transaction services stocks, the industry is currently trading at 21.11X compared with the S&P 500’s 19.79X and the sector’s 22.59X.
Over the last five years, the industry traded as high as 32.39X, as low as 17.76X and at the median of 25.04X.
5 Stocks to Keep a Close Eye On
We are presenting five stocks from the space currently carrying a Zacks Rank #3 (Hold). Considering the current industry scenario, it might be prudent for investors to retain these stocks in their portfolio as these are well-placed to generate growth in the long haul.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Visa: San Francisco-based Visa enters into new deals, renews agreements and pursues accretive acquisitions in a bid to expand its network. Strong operations across Latin America, Canada and the United States contribute to the growth of this leader in digital payments. Favorable consumer spending fetches sizable revenues in the form of transaction processing fees for Visa. It relies heavily on technology investments for building an advanced digital suite.
The Zacks Consensus Estimate for Visa’s fiscal 2023 earnings is pegged at $8.66 per share, indicating a 15.5% rise from the year-ago reported figure. The consensus mark for current-year revenues stands at $32.6 billion, which implies a 11.2% improvement from the year-ago actual. V’s earnings beat estimates in each of the last four quarters, the average being 5.17%. Shares of Visa have rallied 16.3% year to date.
Mastercard: Headquartered in Purchase, NY, Mastercard gains from increased travel and entertainment-related spending. Its processed transactions are driven by resilient consumer spending and its contactless acceptance initiatives. Increased confidence of people in traveling boosts cross-border volumes of Mastercard. MA frequently resorts to tie-ups with local financial institutions of different countries, government departments and global organizations to occupy a significant share of the worldwide digital payments market.
The Zacks Consensus Estimate for Mastercard’s 2023 earnings is pegged at $12.14 per share, indicating a 14% improvement from the year-ago reported figure. The consensus mark for current-year revenues stands at $25.2 billion, suggesting 13.3% growth from the year-ago actual. MA’s earnings beat estimates in each of the last four quarters, the average being 3.22%. Its shares have gained 14.2% year to date.
Fidelity National: The strong performances of the Banking Solutions and Capital Market Solutions segments drive top-line growth of Jacksonville-based FIS. Higher transactions and account growth due to volatility fuel results of the Banking segment. Improved sales volume and transition to SaaS-based engagements benefit the Capital Market business. FIS maintained an acquisition spree to bolster its footprint in various areas. It continuously pursues investments in innovative technologies and solutions to upgrade the payments infrastructure amid a booming digital economy.
The Zacks Consensus Estimate for Fidelity National’s 2023 earnings is pegged at $6.01 per share. The consensus mark for current-year revenues stands at $14.6 billion, which hints at an 0.4% uptick from the year-ago actual. FIS’s earnings beat estimates in three of the last four quarters and missed the mark once, the average being 3.06%. Even though its shares have declined 14.1% year to date, solid fundamentals are likely to help shares bounce back in the days ahead.
Global Payments: Based in Atlanta, GA, Global Payments rides on solid contributions from its Merchant Solutions and Issuer Solutions units. Its Merchant Solutions unit benefits from global constant currency volume growth and resilient customer spending. Growing commercial card transactions offer an impetus to the performance of the Issuer Solutions business. The growing uptake of digital payment methods is expected to boost GPN’s transaction volumes. It pursues technology investments that are leading to a shift in its business mix toward technology enablement.
The Zacks Consensus Estimate for Global Payments’ 2023 earnings is pegged at $10.39 per share, indicating a 11.5% rise from the year-ago reported figure. The consensus mark for current-year revenues stands at $8.7 billion, implying a 7.2% improvement from the year-ago actual. GPN’s earnings beat estimates in two of the last four quarters and missed the mark twice, the average being 1.07%. Its shares have advanced 23.5% year to date.
Equifax: Headquartered in Atlanta, Equifax benefits from acquisitions and continued general consumer credit activity. EFX pursues cloud data and technology transformation efforts to bring about innovation and product development as well as solidify customer and partner integration. Buyouts, mergers and partnerships provide Equifax an opportunity to boost its customer base by providing differentiated data assets and analytics. Its diversified client base holds great importance since weakness in any sector can be balanced with strength in others.
The Zacks Consensus Estimate for EFX’s 2023 earnings is pegged at $7.02 per share. The consensus mark for current-year revenues stands at $5.3 billion, suggesting 3.8% growth from the year-ago actual. Equifax’s earnings beat estimates in each of the last four quarters, the average being 3.74%. Its shares have gained 1.9% year to date.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Mastercard Incorporated (MA) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
Fidelity National Information Services, Inc. (FIS) : Free Stock Analysis Report
Equifax, Inc. (EFX) : Free Stock Analysis Report
Global Payments Inc. (GPN) : Free Stock Analysis Report
