Financial Transaction Services industry was initially at the receiving end of the coronavirus outbreak due to a decline in overall spending and travel, things are gradually looking up now. With the development of vaccines, consumer confidence is rebounding, which will spur the spending tendency. Also, this pandemic intensified the habit of online shopping and spending, which is the new normal. Players with robust technology platform, wide network and a strong business model are set to gain traction from this evolution in the industry. Fiserv Inc. ( FISV Quick Quote FISV - Free Report) , Global Payments Inc. ( GPN Quick Quote GPN - Free Report) and Evertec Inc. ( EVTC Quick Quote EVTC - Free Report) are a few stocks, which are likely to gain from the above-mentioned trends Industry Description
The Zacks Financial Transaction Services industry is part of the Financial Technology or FinTech space, which includes several companies with varying nature of businesses. The industry includes card and payment processors, ATM service providers, card payment solution providers, money remittance service providers, and providers of investment solutions and services to financial advisors.
The players in this segment typically operate their unique and proprietary global payments’ network that links issuers and acquirers around the globe to facilitate the switching of transactions, permitting account holders to use their products at millions of acceptance locations worldwide. Monetary transactions are effectuated through these networks, which offer a convenient, quick and secure payment method in several currencies (nearly 150) across the globe.
Here are the industry’s three major themes: Technology and innovation are changing consumer habits and driving opportunities in e-commerce, mobile payments, blockchain technology and digital currencies, which bode well for the companies in the financial transaction service space. In the fiscal year 2020, partly due to the ongoing coronavirus pandemic, there was a significant acceleration in the transition from cash to digital forms of payment. E-commerce represents only about 14% of global retail spending, which leaves ample scope for its expansion. Per Markets and Markets, the global digital payment market value is expected to reach $154.1 billion by 2025from $79.3 billion in 2020, seeing a CAGR of 14.2%. The digital payment market is expected to grow owing to the worldwide initiatives for the promotion of digital payments, high proliferation of smartphones enabling m-commerce growth, increase in e-commerce sales and growth in internet usage. Industry biggies, such as Mastercard Inc. (MA), Visa Inc. (V), American Express Inc. (AXP) and Global Payments Inc. ( The COVID-19 Pandemic and Shift in Business: GPN Quick Quote GPN - Free Report) among others have witnessed a significant rise in their business volumes since the past many years on the back of shifting gears from cash to the digital and card payment modes. The global payments industry is undergoing a substantial and rapid technological change including mobile and in-app payment technologies, e-commerce, tokenization, cryptocurrencies, distributed ledger and blockchain technologies, and the new authentication technologies, such as biometrics, 3D Secure 2.0 and dynamic cardholder verification values or dCVV2. As a result, we expect new services and technologies to continue to emerge and evolve, placing the companies at different points in the payment ecosystem for solid growth. Companies consistently invest in AI to help detect and prevent frauds. Advances in these fields should continue to help improve risk tools and solutions, and prevent deceptions in the entire payments ecosystem, thus making it more agile and hassle free. Investment in Technology: Cross-border volume, which constitutes international business, continues to be heavily impacted by the decline in travel. International cross-border transaction revenues represent a significant chunk of the company’s revenue in this space. Consumers affected by COVID-19 may continue to demonstrate a changed behavior even after the pandemic subsided. For example, consumers may decrease discretionary spending on a permanent or long-term basis while certain industries may take longer time to recover (particularly those that rely on travel or large gatherings). This can be attributed to consumer hesitancy to return to social interaction. Also, companies may see a sharp descent in consumers’ spending on credit products as economic worries remain and all this may have repercussions for businesses at large. Consequently, companies may persistently experience adverse material impacts on their business as a result of the global economic gloom including lower domestic and cross-border spending trends. Decline in International Business: Zacks Industry Rank Indicates Bleak Prospects
The Zacks Financial Transaction Services industry is housed within the broader Zacks
Business Services sector. It carries a Zacks Industry Rank #202, which places it in the bottom 20% of the 254 Zacks industries.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates cloudy near-term prospects. 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 bottom 20% of the Zacks-ranked industries is a result of a negative earnings per share outlook for the constituent companies in aggregate.
Before we present a few stocks that you may still want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and its valuation picture.
Industry Outperforms Sector but Lags S&P 500
The Financial Transaction Services industry has performed better than the broader Zacks Business Services Sector but lagged the Zacks S&P 500 composite over the past year.
The industry has rallied nearly 13% over this period compared with the S&P 500 Index’s gain of 20.5% and against the broader sector’s decline of 3.6%.
One-Year Price Performance Industry’s Current Valuation
Comparing with the S&P 500 Index on the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for the industry, we see that the industry’s ratio of 32.3X is higher than the S&P 500’s 22.90X as well as the sector’s 31.3X.
Over the last five years, the industry has traded as high as 32.73X, as low as 20.78X and at the median of 23.6X as the chart below shows.
Price-to-Earnings Ratio (F12M) Price-to-Earnings Ratio (F12M) 3 Financial Transaction Services Stocks to Keep a Close Eye on
We are presenting three stocks that carry a Zacks Rank #2 (Buy) or 3 (Hold). These stocks are well-positioned to grow in the near term. You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fiserv Inc. (
FISV Quick Quote FISV - Free Report) enjoys a leading position in the financial and payments solutions domain on the back of its broad and diverse customer base, and continued technological upgrades. The company's diversified product portfolio helps attract a steady flow of customers. Acquisitions aid it to expand its product portfolio, enhance its offerings, boost its market share and widen its customer base. The company has been consistently rewarding its shareholders through share buybacks.
The Zacks Consensus Estimate for current-year EPS growth is 10.75% compared with he industry’s decline of 6%
The stock has gained 9.4% over the past six months.
Price & Consensus: FISV Global Payments Inc. ( GPN Quick Quote GPN - Free Report) : This Zacks Rank #3 stock dominates the payment software, e-commerce and omni-channel solutions space. Its buyout of Total System Services widely exposed it to the fast-evolving payments market, globally. Constant investments in technology led to a shift in the company’s business mix toward technology enablement. It undertook additional cost-cutting measures to cope with the pandemic impact on its business. Its operating cash flows have been improving over the years, which boost investments in technology. A strong solvency position also bodes well.
The Zacks Consensus Estimate for current-year EPS has improved 1.4% in the past 60 days. The stock has gained 7.7% over the past six months.
Price & Consensus: GPN
Evertec, Inc. ( EVTC Quick Quote EVTC - Free Report) with its focus on Latin America is gaining traction from a recovery in consumer demand as the economy reopens as well as the impact from new business. It continues to benefit from its digital channels related to the ATH network. Its ATH Movil Business continue to deliver robust growth and the adoption rate among both consumers and businesses is encouraging. The company also expanded the contactless functionality through QR codes from 400 merchants in July to more than 1,500 businesses in September. A number of partnerships forged over the past many years strengthened the company’s markets and business.
Its continuous innovation, product diversity, and mergers and acquisitions pave the way for long-term growth.
The Zacks Consensus Estimate for current-year EPS has improved 3.6% in the past seven days. The stock has rallied 27.2% over the past six months.
Price & Consensus: EVTC