Retail stocks have been the best market performers so far in 2018, handily outpacing the S&P 500. The industry is up 20% year to date versus 6% for the S&P and some of the best performers, like Amazon (AMZN), Macy’s (M - Free Report) and Kohl’s (KSS - Free Report) are up even more.
In a blockbuster Q1 earnings season, one retail stock after another reported better-than expected revenues in an environment of low unemployment and Consumer Confidence at an 18-month high.
Most of those increased sales have one thing in common – electronic payment. Approximately 67% of in-person sales and virtually 100% of online transactions are made with a credit or debit card. Consumers increasingly prefer the convenience and security of electronic transactions for large purchases all the way down to a cup of coffee.
In the shift toward an essentially cashless economy, one big winner is the company who process electronic payments and transfers.
Mastercard (MA - Free Report) has been offering credit card processing services for issuing banks since 1966 – way back when credit card transactions happened on those sliding carbon-copy machines. Originally organized as a cooperative of issuing banks, Mastercard went public in 2006 as an independent transaction processor.
Mastercard now has gross sales of $15 billion a year and reported record results in Q1 with gross sales of $3.6B and earnings of $1.50/share, increases of 31% and 49% respectively over the same quarter in 2017. It was the 17th quarter in a row that Mastercard exceeded the Zacks Consensus Earnings Estimate and 16 subsequent upward revisions now have the consensus for full year 2018 at $6.31/share, an increase of 37% over 2017. MA is a Zacks Rank #1 (Strong Buy).
Payment Solutions for Enterprise
Wex Inc (WEX - Free Report) provides electronic payment solutions for businesses in three general areas: Fleet Services, Employee Travel and Healthcare. WEX partners with both the customers who utilize the company’s innovative virtual payment solutions and the vendors who provide the goods and services being purchased, using economies of scale to reduce transaction costs.
WEX provides detailed information, insights and control over spending, allowing customers to manage costs and reduce paperwork.
WEX has also invested in distributed ledger technology especially as it relates to crypto-currencies. Though Bitcoin and other cryptos are not yet widely used for everyday transactions, if they gain favor in the future, WEX will be ready to process payments - and likey one of the leaders in the iindustry.
Thanks to steadily growing revenues and earnings, WEX shares have risen 36% in 2018. WEX is a Zacks Rank #2 (Buy).
Cash is not Dead
Although an increasing amount of payments are performed electronically, cash is not dead yet, as many consumers and merchants continue to prefer currency for transactions. Especially when traveling, millions of customers rely on ATM machines for ready cash and operators get paid a fee on every withdrawal.
Cardtronics Plc (CATM - Free Report) is the world’s largest operator of ATMs, with 230,000 machines in 10 countries processing over 2.6 billion transactions per year. Their customers include large financial institutions like Citigroup (C - Free Report) , TD (TD) and Santander (SOV.C) as well as merchants including Target, Kroger (KR - Free Report) and Walgreens (WBA - Free Report) .
With a history of positive earnings surprises, CATM posted a big earnings beat in Q1, reporting $0.46/share versus estimates of $0.26/share.
Cardtronics is a Zacks Rank #1 (Strong Buy).
Although new technologies are a lot more interesting to talk about, sometimes the biggest and best company is finding the opportunities for big earnings in the “old” space. Cardtronics certainly has found them in ATMs.
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