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5 Financial Transaction Stocks to Watch Amid Tech Investments
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The Financial Transaction Services industry is expected to gain on widespread adoption of contactless payments and an improved consumer spending. Despite promising prospects of the industry, escalating expenses resulting from heavy technology investments remain a significant headwind that continues to hound the industry players. Other issues, such as intensifying competition and suspension of operations in Russia might continue to trouble the financial transaction services providers. Despite such challenges, companies like Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) , Fidelity National Information Services, Inc. (FIS - Free Report) , Global Payments Inc. (GPN - Free Report) and FLEETCOR Technologies, Inc. are placed better to counter the industry headwinds.
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 to facilitate the switching of transactions, permitting account holders to use their products at millions of acceptance locations. Monetary transactions are effectuated 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 Financial Transaction Services Industry's Future
Rising Technology Investments: The Financial Transaction Services space has been subject to severe competition as a result of which industry players remain under constant pressure to come up with enhanced capabilities. They resort to investments in technology to roll out advanced and secure digital payment solutions that remain the dire need for consumers these days. Growth-boosting investments toward advertisements and client benefits will lend a competitive edge over competitors. An elevated expense level might hamper margins of the industry players.
Pursuit of M&A Strategy: The Financial Transaction Services industry continues to witness a solid merger and acquisition (M&A) strategy that aims to strengthen capabilities, expand its global presence and boost the customer base of the industry players. The primary aim behind these deals is to bring about diversification benefits, which are crucial to strengthening one’s market position. M&A bankers at Morgan Stanley remain optimistic about 2022 being a solid year with respect to the M&A deals. Their positive assumption is based on the fact that all the elements that led to record deal-making activity last year continue in 2022 as well.
Emergence of Various Digital Payment Methods: The COVID-19 pandemic triggered a shift toward contactless payments, which are cost-effective and can be made seamlessly from the comforts of one’s home. With cash and checks taking a backseat, several flexible digital payment options encompassing cryptocurrency, biometrics, QR code and buy now, pay later (BNPL) option are coming to the forefront. As a result, the financial transaction services stocks stand well-poised to gain on launching diversified payment solutions. As increased digitization also simultaneously involves the risk of payment frauds, the stocks remain well-equipped with a comprehensive portfolio of fraud-detection solutions.
Improved Consumer Spending: As the global economy is steadily recovering from the ill effects of the pandemic, resumption of business activities and better consumer spending remain underway. Increased consumer spending resulting from higher pent-up demand and improved personal savings made during the pandemic will continue to boost the transaction volumes of financial transaction services stocks. Relaxations of border restrictions by several countries led to rebounding cross-border travel, which in turn, might have aided cross-border volumes of companies in the financial transaction services space, especially those engaged in global money transfers. However, brewing recession fears and ongoing geopolitical turmoil might affect some of the consumer spending growth. The Russia-Ukraine conflict can put pressure on the transaction volumes of those companies that had their areas of operations across Russia.
Zacks Industry Rank Signals Drab Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates tepid 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 #171, which places it in the bottom 32% of more than 250 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2022 have declined 22.1% over the past year.
Despite the dismal scenario, we will present a few stocks that one can retain, given their solid growth endeavors. But before that, it’s worth taking 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 fell short of the Zacks S&P 500 composite in the past year.
In the said time frame, the industry has lost 29.3% compared with the Business Services sector’s decline of 45.3%. The S&P 500 has declined 14.4% in the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
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 20.09X compared with the S&P 500’s 16.92X and the sector’s 23.6X.
Over the last five years, the industry traded as high as 25.95X, as low as 20.09X and at the median of 23.34X.
Forward 12-Month Price/Earnings (P/E) Ratio
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
5 Stocks to Keep a Close Eye on
We are presenting five stocks from the Financial Transaction Services industry that currently carry 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.
Visa: Based in San Francisco, CA, Visa operates as one of the world’s leaders in digital payments. V continues to benefit from acquisitions, alliances and expanding payments volume. Significant investments in technology enable V to sustain its leading position in the rapidly-evolving payments market. Visa Token Service, Visa Checkout and Visa In-App Provisioning are some of the digital solutions developed by V in recent years to advance its digital platform. Shares of Visa have gained 3.6% in the past six months.
The Zacks Consensus Estimate for Visa’s fiscal 2022 earnings is pegged at $7.41 per share, indicating an 25.4% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 20.6% improvement from the year-ago actual. V’s earnings beat estimates in each of the last four quarters, the average being 8.81%.
Price and Consensus: V
Image Source: Zacks Investment Research
Mastercard: Headquartered in Purchase, NY, Mastercard continues to gain from a series of acquisitions and collaborations to expand its addressable markets, drive new revenue streams and strengthen core product solutions. MA’s solid digital suite built through several collaborations with renowned financial service providers and substantial investments is expected to position it well in the rapidly-expanding digital payments space across the world. The Mastercard stock has gained 3.1% in the past six months.
The Zacks Consensus Estimate for Mastercard’s 2022 earnings is pegged at $10.66 per share, indicating an 26.9% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 18% improvement from the year-ago actual. MA’s earnings beat estimates in each of the last four quarters, the average being 12.9%.
Price and Consensus: MA
Image Source: Zacks Investment Research
Fidelity National Information Services: Headquartered in Jacksonville, FL, revenues of FIS get a boost from a well-performing Merchants Solution segment. FIS maintained an acquisition spree to bolster its footprint in various areas. FIS makes continuously pursues investments in innovative technologies and solutions to upgrade the payments infrastructure amid a booming digital economy. Shares of FIS have gained 3.7% in the past six months.
The Zacks Consensus Estimate for FIS’ 2022 earnings is pegged at $7.134 per share, indicating an 8.9% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 5.8% improvement from the year-ago actual. FIS’ earnings beat estimates in each of the last four quarters, the average being 1.75%.
Price and Consensus: FIS
Image Source: Zacks Investment Research
Global Payments: Based in Atlanta, GA, Global Payments is well-poised for growth on the back of strong performances across Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions units. GPN frequently resorted to acquisitions and partnerships to bolster its capabilities and geographical presence. GPN continued investments in technology advancements, which augur well amid a booming digital payments space. Shares of Global Payments have gained 2.5% in the past six months.
The Zacks Consensus Estimate for Global Payments’ 2022 earnings is pegged at $9.48 per share, indicating an 16.2% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 5.3% improvement from the year-ago actual. GPN’s earnings beat estimates in three of the last four quarters and matched the mark once, the average being 1.07%.
Price and Consensus: GPN
Image Source: Zacks Investment Research
FLEETCOR Technologies: Based in Atlanta, GA, FLEETCOR Technologies’ top line continues to be driven by volume improvements and revenues per transaction in its certain payment programs. Solid organic revenue growth continues on the back of strength across FLT’s product categories, namely fuel, corporate payments, plus tolls and lodging. Even though shares of FLEETCOR Technologies have lost 8.4% in the past six months, its strong fundamentals are likely to help shares bounce back in the days ahead.
The Zacks Consensus Estimate for FLEETCOR Technologies’ 2022 earnings is pegged at $15.96 per share, indicating an 20.8% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 20.3% improvement from the year-ago actual. FLT’s earnings beat estimates in each of the last four quarters, the average being 3.70%.
Price and Consensus: FLT
Image Source: Zacks Investment Research
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5 Financial Transaction Stocks to Watch Amid Tech Investments
The Financial Transaction Services industry is expected to gain on widespread adoption of contactless payments and an improved consumer spending. Despite promising prospects of the industry, escalating expenses resulting from heavy technology investments remain a significant headwind that continues to hound the industry players. Other issues, such as intensifying competition and suspension of operations in Russia might continue to trouble the financial transaction services providers. Despite such challenges, companies like Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) , Fidelity National Information Services, Inc. (FIS - Free Report) , Global Payments Inc. (GPN - Free Report) and FLEETCOR Technologies, Inc. are placed better to counter the industry headwinds.
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 to facilitate the switching of transactions, permitting account holders to use their products at millions of acceptance locations. Monetary transactions are effectuated 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 Financial Transaction Services Industry's Future
Rising Technology Investments: The Financial Transaction Services space has been subject to severe competition as a result of which industry players remain under constant pressure to come up with enhanced capabilities. They resort to investments in technology to roll out advanced and secure digital payment solutions that remain the dire need for consumers these days. Growth-boosting investments toward advertisements and client benefits will lend a competitive edge over competitors. An elevated expense level might hamper margins of the industry players.
Pursuit of M&A Strategy: The Financial Transaction Services industry continues to witness a solid merger and acquisition (M&A) strategy that aims to strengthen capabilities, expand its global presence and boost the customer base of the industry players. The primary aim behind these deals is to bring about diversification benefits, which are crucial to strengthening one’s market position. M&A bankers at Morgan Stanley remain optimistic about 2022 being a solid year with respect to the M&A deals. Their positive assumption is based on the fact that all the elements that led to record deal-making activity last year continue in 2022 as well.
Emergence of Various Digital Payment Methods: The COVID-19 pandemic triggered a shift toward contactless payments, which are cost-effective and can be made seamlessly from the comforts of one’s home. With cash and checks taking a backseat, several flexible digital payment options encompassing cryptocurrency, biometrics, QR code and buy now, pay later (BNPL) option are coming to the forefront. As a result, the financial transaction services stocks stand well-poised to gain on launching diversified payment solutions. As increased digitization also simultaneously involves the risk of payment frauds, the stocks remain well-equipped with a comprehensive portfolio of fraud-detection solutions.
Improved Consumer Spending: As the global economy is steadily recovering from the ill effects of the pandemic, resumption of business activities and better consumer spending remain underway. Increased consumer spending resulting from higher pent-up demand and improved personal savings made during the pandemic will continue to boost the transaction volumes of financial transaction services stocks. Relaxations of border restrictions by several countries led to rebounding cross-border travel, which in turn, might have aided cross-border volumes of companies in the financial transaction services space, especially those engaged in global money transfers. However, brewing recession fears and ongoing geopolitical turmoil might affect some of the consumer spending growth. The Russia-Ukraine conflict can put pressure on the transaction volumes of those companies that had their areas of operations across Russia.
Zacks Industry Rank Signals Drab Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates tepid 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 #171, which places it in the bottom 32% of more than 250 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2022 have declined 22.1% over the past year.
Despite the dismal scenario, we will present a few stocks that one can retain, given their solid growth endeavors. But before that, it’s worth taking 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 fell short of the Zacks S&P 500 composite in the past year.
In the said time frame, the industry has lost 29.3% compared with the Business Services sector’s decline of 45.3%. The S&P 500 has declined 14.4% in the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
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 20.09X compared with the S&P 500’s 16.92X and the sector’s 23.6X.
Over the last five years, the industry traded as high as 25.95X, as low as 20.09X and at the median of 23.34X.
Forward 12-Month Price/Earnings (P/E) Ratio
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
5 Stocks to Keep a Close Eye on
We are presenting five stocks from the Financial Transaction Services industry that currently carry 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: Based in San Francisco, CA, Visa operates as one of the world’s leaders in digital payments. V continues to benefit from acquisitions, alliances and expanding payments volume. Significant investments in technology enable V to sustain its leading position in the rapidly-evolving payments market. Visa Token Service, Visa Checkout and Visa In-App Provisioning are some of the digital solutions developed by V in recent years to advance its digital platform. Shares of Visa have gained 3.6% in the past six months.
The Zacks Consensus Estimate for Visa’s fiscal 2022 earnings is pegged at $7.41 per share, indicating an 25.4% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 20.6% improvement from the year-ago actual. V’s earnings beat estimates in each of the last four quarters, the average being 8.81%.
Price and Consensus: V
Image Source: Zacks Investment Research
Mastercard: Headquartered in Purchase, NY, Mastercard continues to gain from a series of acquisitions and collaborations to expand its addressable markets, drive new revenue streams and strengthen core product solutions. MA’s solid digital suite built through several collaborations with renowned financial service providers and substantial investments is expected to position it well in the rapidly-expanding digital payments space across the world. The Mastercard stock has gained 3.1% in the past six months.
The Zacks Consensus Estimate for Mastercard’s 2022 earnings is pegged at $10.66 per share, indicating an 26.9% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 18% improvement from the year-ago actual. MA’s earnings beat estimates in each of the last four quarters, the average being 12.9%.
Price and Consensus: MA
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for FIS’ 2022 earnings is pegged at $7.134 per share, indicating an 8.9% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 5.8% improvement from the year-ago actual. FIS’ earnings beat estimates in each of the last four quarters, the average being 1.75%.
Price and Consensus: FIS
Image Source: Zacks Investment Research
Global Payments: Based in Atlanta, GA, Global Payments is well-poised for growth on the back of strong performances across Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions units. GPN frequently resorted to acquisitions and partnerships to bolster its capabilities and geographical presence. GPN continued investments in technology advancements, which augur well amid a booming digital payments space. Shares of Global Payments have gained 2.5% in the past six months.
The Zacks Consensus Estimate for Global Payments’ 2022 earnings is pegged at $9.48 per share, indicating an 16.2% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 5.3% improvement from the year-ago actual. GPN’s earnings beat estimates in three of the last four quarters and matched the mark once, the average being 1.07%.
Price and Consensus: GPN
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for FLEETCOR Technologies’ 2022 earnings is pegged at $15.96 per share, indicating an 20.8% rise from the year-ago tally. The consensus mark for current-year revenues indicates a 20.3% improvement from the year-ago actual. FLT’s earnings beat estimates in each of the last four quarters, the average being 3.70%.
Price and Consensus: FLT
Image Source: Zacks Investment Research