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5 Financial Transaction Stocks in Focus Despite Industry Woes
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The Financial Transaction Services industry is likely to benefit from the growing adoption of digital means – a trend that is unlikely to slow down. Though improved consumer spending and rebounding travel remain underway, the optimistic scenario might be strained by the continued impact of inflation. Elevated technology investments in order to sustain one’s market position remain a significant challenge for financial transaction services providers. Despite such headwinds, companies like Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) , Fiserv, Inc. , Global Payments Inc. (GPN - Free Report) and FLEETCOR Technologies, Inc. are placed well 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 Influencing the Financial Transaction Services Industry's Future
Severe Competition Compelling Heavy Technology Investments: The Financial Transaction Services space witnesses intensifying competition as a result of which industry players are compelled to undertake significant technology investments. The ongoing trend to go digital has triggered the need to opt for investments in order to upgrade one’s digital capabilities. But rolling out advanced digital payment solutions is not adequate, as increased digitization often gives rise to sophisticated forms of cybercrimes. Therefore, the industry players also need to undertake investments for equipping themselves with enhanced fraud detection solutions. An elevated expense level might hamper margins of the industry players.
M&A Strategy Under Pressure: Players of the Financial Transaction Services space frequently resort to a merger and acquisition (M&A) strategy for bolstering capabilities, bringing diversification benefits, expanding global presence and increasing the customer base. However, per S&P Global, M&A activity has been on a downtrend this year and shows no signs of a sharp turnaround in the near term. The Fed’s frequent rate hikes in order to counter inflationary headwinds stir volatility in equity markets. As a result, the purchasing power of consumers suffered a blow. Additionally, rising interest rates increase the cost of financing, which makes businesses reluctant to pursue M&A deals.
Better Consumer Spending & Rebounding Travel: Consumer spending seems not to have been much affected by the ongoing inflationary pressure, per the U.S. Bureau of Economic Analysis’ first estimate of third-quarter 2022 Gross Domestic Product. This brings a ray of hope for financial transaction services stocks since the transaction volumes of these players depend, to a large extent, on consumer spending. Even, amid the ongoing pressure of inflation, substantial personal savings made during the COVID-19 pandemic acted as a cushion, facilitating continued consumer spending. With border restrictions lifted and the pandemic becoming the new normal of life, individuals have resumed traveling. However, the future of consumer spending looks uncertain owing to the unpredictable nature of inflation and looming recession fears.
Growing Adoption of Contactless Payment Methods: The pandemic-induced shift toward contactless payments proved to be a boon for not only consumers but for financial transaction services players as well. With cash and checks taking a backseat, several flexible digital payment options such as cryptocurrency, biometrics, QR code and buy now, pay later (BNPL) option came to the forefront. While affordability and ease of digital payments were benefits to consumers, the industry players were aided by steady and diversified revenue streams.
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 #181, which places it in the bottom 27% 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 6.9% 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 and S&P 500
The Zacks Financial Transaction Services industry has outperformed its sector and the S&P 500 composite in the past year.
In the said time frame, the industry has lost 17.1% compared with the Business Services sector’s decline of 39.1%. The S&P 500 has declined 17.3% 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 20.69X compared with the S&P 500’s 17.49X and the sector’s 24.43X.
Over the last five years, the industry traded as high as 26X, as low as 17.73X and at the median of 21.92X.
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, Visa is one of the world leaders in digital payments. Numerous acquisitions, alliances and expanding payments volume continue to drive its revenues. A strong financial position equips V to undertake significant technology investments in order to sustain its leading position in the rapidly-evolving payments market. Several digital solutions such as Visa Token Service, Visa Checkout and Visa In-App Provisioning have been developed by V in recent years to upgrade its digital platform. Its shares have lost 1.1% in a year.
The Zacks Consensus Estimate for Visa’s fiscal 2023 earnings is pegged at $8.30 per share, indicating a 10.7% rise from the year-ago reported figure. The consensus mark for fiscal-year revenues indicates an 8.8% improvement from the year-ago actual. V’s earnings beat estimates in each of the last four quarters, the average being 8.28%.
Price and Consensus: V
Image Source: Zacks Investment Research
Mastercard: Headquartered in Purchase, NY, Mastercard frequently resorts to acquisitions and collaborations for expanding addressable markets, adding new revenue streams and strengthening core product solutions. When it comes to technological advancements, MA has always remained at the forefront and utilized technologies and security protocols to devise solutions for seamless digital shopping. MA has an enhanced digital suite in place, which it developed through constant tie-ups and significant investments. Its shares have inched up 1% in a year.
The Zacks Consensus Estimate for Mastercard’s 2022 earnings is pegged at $10.58 per share, indicating a 26% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates a 17.3% improvement from the year-ago actual. MA’s earnings beat estimates in each of the last four quarters, the average being 11.81%.
Price and Consensus: MA
Image Source: Zacks Investment Research
Fiserv: Headquartered in Brookfield, WI, Fiserv continues to benefit from acquisitions that boost its digital capabilities and strengthen its competitive position. A diversified product portfolio continues to bolster its customer base. The rapidly evolving financial services industry and rising demand for digital banking and payment services provide significant growth opportunities for FISV. Its shares have lost 3.5% in a year.
The Zacks Consensus Estimate for Fiserv’s 2022 earnings is pegged at $6.49 per share, indicating a 16.3% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates an 8.7% improvement from the year-ago actual. FISV’s earnings beat estimates in three of the last four quarters and missed the mark once, the average being 0.54%.
Price and Consensus: FISV
Image Source: Zacks Investment Research
Global Payments: Based in Atlanta, GA, Global Payments is well-poised for growth on the back of solid contributions from Merchant Solutions, Issuer Solutions and Consumer Solutions segments. GPN undertakes acquisitions and partnerships to bolster its capabilities and geographical presence. GPN also remains active on the technology investments front. Its shares have plunged 22.9% in a year.
The Zacks Consensus Estimate for Global Payments’ 2022 earnings is pegged at $9.37 per share, indicating a 14.8% rise from the year-ago figure. The consensus mark for current-year revenues indicates a 3.9% improvement from the year-ago actual. GPN’s earnings beat estimates in two of the last four quarters, matched the mark once and missed once, the average being 0.51%.
Price and Consensus: GPN
Image Source: Zacks Investment Research
FLEETCOR Technologies: Based in Atlanta, GA, volume improvements and higher revenues per transaction in its certain payment programs continue to provide an impetus to the revenues of FLEETCOR Technologies. Solid organic revenue growth continues on the back of strength across FLT’s product categories. It also resorts to an inorganic growth route and pursues acquisitions to grow its customer base, headcount and operations. Shares of FLT have lost 15.5% in a year.
The Zacks Consensus Estimate for FLEETCOR Technologies’ 2022 earnings is pegged at $15.96 per share, indicating a 20.8% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates a 20.5% improvement from the year-ago actual. FLT’s earnings beat estimates in each of the last four quarters, the average being 3.78%.
Price and Consensus: FLT
Image Source: Zacks Investment Research
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5 Financial Transaction Stocks in Focus Despite Industry Woes
The Financial Transaction Services industry is likely to benefit from the growing adoption of digital means – a trend that is unlikely to slow down. Though improved consumer spending and rebounding travel remain underway, the optimistic scenario might be strained by the continued impact of inflation. Elevated technology investments in order to sustain one’s market position remain a significant challenge for financial transaction services providers. Despite such headwinds, companies like Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) , Fiserv, Inc. , Global Payments Inc. (GPN - Free Report) and FLEETCOR Technologies, Inc. are placed well 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 Influencing the Financial Transaction Services Industry's Future
Severe Competition Compelling Heavy Technology Investments: The Financial Transaction Services space witnesses intensifying competition as a result of which industry players are compelled to undertake significant technology investments. The ongoing trend to go digital has triggered the need to opt for investments in order to upgrade one’s digital capabilities. But rolling out advanced digital payment solutions is not adequate, as increased digitization often gives rise to sophisticated forms of cybercrimes. Therefore, the industry players also need to undertake investments for equipping themselves with enhanced fraud detection solutions. An elevated expense level might hamper margins of the industry players.
M&A Strategy Under Pressure: Players of the Financial Transaction Services space frequently resort to a merger and acquisition (M&A) strategy for bolstering capabilities, bringing diversification benefits, expanding global presence and increasing the customer base. However, per S&P Global, M&A activity has been on a downtrend this year and shows no signs of a sharp turnaround in the near term. The Fed’s frequent rate hikes in order to counter inflationary headwinds stir volatility in equity markets. As a result, the purchasing power of consumers suffered a blow. Additionally, rising interest rates increase the cost of financing, which makes businesses reluctant to pursue M&A deals.
Better Consumer Spending & Rebounding Travel: Consumer spending seems not to have been much affected by the ongoing inflationary pressure, per the U.S. Bureau of Economic Analysis’ first estimate of third-quarter 2022 Gross Domestic Product. This brings a ray of hope for financial transaction services stocks since the transaction volumes of these players depend, to a large extent, on consumer spending. Even, amid the ongoing pressure of inflation, substantial personal savings made during the COVID-19 pandemic acted as a cushion, facilitating continued consumer spending. With border restrictions lifted and the pandemic becoming the new normal of life, individuals have resumed traveling. However, the future of consumer spending looks uncertain owing to the unpredictable nature of inflation and looming recession fears.
Growing Adoption of Contactless Payment Methods: The pandemic-induced shift toward contactless payments proved to be a boon for not only consumers but for financial transaction services players as well. With cash and checks taking a backseat, several flexible digital payment options such as cryptocurrency, biometrics, QR code and buy now, pay later (BNPL) option came to the forefront. While affordability and ease of digital payments were benefits to consumers, the industry players were aided by steady and diversified revenue streams.
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 #181, which places it in the bottom 27% 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 6.9% 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 and S&P 500
The Zacks Financial Transaction Services industry has outperformed its sector and the S&P 500 composite in the past year.
In the said time frame, the industry has lost 17.1% compared with the Business Services sector’s decline of 39.1%. The S&P 500 has declined 17.3% 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 20.69X compared with the S&P 500’s 17.49X and the sector’s 24.43X.
Over the last five years, the industry traded as high as 26X, as low as 17.73X and at the median of 21.92X.
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, Visa is one of the world leaders in digital payments. Numerous acquisitions, alliances and expanding payments volume continue to drive its revenues. A strong financial position equips V to undertake significant technology investments in order to sustain its leading position in the rapidly-evolving payments market. Several digital solutions such as Visa Token Service, Visa Checkout and Visa In-App Provisioning have been developed by V in recent years to upgrade its digital platform. Its shares have lost 1.1% in a year.
The Zacks Consensus Estimate for Visa’s fiscal 2023 earnings is pegged at $8.30 per share, indicating a 10.7% rise from the year-ago reported figure. The consensus mark for fiscal-year revenues indicates an 8.8% improvement from the year-ago actual. V’s earnings beat estimates in each of the last four quarters, the average being 8.28%.
Price and Consensus: V
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Mastercard’s 2022 earnings is pegged at $10.58 per share, indicating a 26% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates a 17.3% improvement from the year-ago actual. MA’s earnings beat estimates in each of the last four quarters, the average being 11.81%.
Price and Consensus: MA
Image Source: Zacks Investment Research
Fiserv: Headquartered in Brookfield, WI, Fiserv continues to benefit from acquisitions that boost its digital capabilities and strengthen its competitive position. A diversified product portfolio continues to bolster its customer base. The rapidly evolving financial services industry and rising demand for digital banking and payment services provide significant growth opportunities for FISV. Its shares have lost 3.5% in a year.
The Zacks Consensus Estimate for Fiserv’s 2022 earnings is pegged at $6.49 per share, indicating a 16.3% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates an 8.7% improvement from the year-ago actual. FISV’s earnings beat estimates in three of the last four quarters and missed the mark once, the average being 0.54%.
Price and Consensus: FISV
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Global Payments’ 2022 earnings is pegged at $9.37 per share, indicating a 14.8% rise from the year-ago figure. The consensus mark for current-year revenues indicates a 3.9% improvement from the year-ago actual. GPN’s earnings beat estimates in two of the last four quarters, matched the mark once and missed once, the average being 0.51%.
Price and Consensus: GPN
Image Source: Zacks Investment Research
FLEETCOR Technologies: Based in Atlanta, GA, volume improvements and higher revenues per transaction in its certain payment programs continue to provide an impetus to the revenues of FLEETCOR Technologies. Solid organic revenue growth continues on the back of strength across FLT’s product categories. It also resorts to an inorganic growth route and pursues acquisitions to grow its customer base, headcount and operations. Shares of FLT have lost 15.5% in a year.
The Zacks Consensus Estimate for FLEETCOR Technologies’ 2022 earnings is pegged at $15.96 per share, indicating a 20.8% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates a 20.5% improvement from the year-ago actual. FLT’s earnings beat estimates in each of the last four quarters, the average being 3.78%.
Price and Consensus: FLT
Image Source: Zacks Investment Research