Back to top

Image: Bigstock

3 Stocks to Ride the Contactless Payment and Delivery Wave

Read MoreHide Full Article

Although 2020 is over, the COVID-19 pandemic still looms large and will continue to play a major role in further changing the perception of people.

The coronavirus-induced stay-at-home wave has spurred demand for web-based services like contactless payment and delivery.

The contactless payment mode, which wasn’t too popular, has fast become the preferred choice among all age groups. The trend is likely to stay, given that people are finding this mode of payment more convenient. In addition, a surge in e-commerce sales amid the pandemic has given a boost to plastic money and mobile wallets.

Another major change triggered by this pandemic is the widespread adoption of contactless deliveries, be it ordering groceries or any other products online. This, in turn, is spurring demand for home delivery and pickup services. The current crisis is compelling logistics and delivery-service companies to invest more in autonomous and drone deliveries in order to reduce human dependence.

Contactless Payments to Further Gain Steam

Contactless payment options have been there for more than two decades now. However, its importance is being felt today like never before, thanks to the pandemic that has compelled people to choose this mode of payment over others on safety concerns. Consumers not only want to shop at their convenience but also minimize personal contact with point-of-sale devices. Contactless cards’ popularity is rising as a result.

A major factor driving digital payment transactions is faster and integrated execution, which offers users a seamless experience. Within the digital space, contactless payments are gathering steam as these can be instantly done, taking roughly one-tenth of the time devoted to the traditional electronic transaction method. Per Capgemini, customer confidence in the security of contactless payments is increasing, with improved device security features such as biometric and cryptography.

Going by Research and Markets, the global digital payments market is expected to grow from $3.9 trillion in 2019 to $5.4 trillion in 2020. The market is expected to stabilize and reach $8,059.3 billion, seeing a CAGR of 20% through 2023.

We believe cash purchases will likely witness a decline and the pandemic will give a further boost to touch-free payment in the near future. Businesses have started preferring contactless transactions, keeping in mind safety reasons.

Contactless Delivery Vital in the Current Scenario

With the onset of the coronavirus pandemic, contactless delivery services have picked up pace and are now well poised to gain further traction. People are still not comfortable to go to public places for avoiding human touch, which is the main cause of the virus’ transmission. In fact, they are even hesitant to avail door-to-door delivery services as they fear that the person bringing deliveries might have been infected with COVID-19.

Therefore, home delivery and pickup services have become the need of the hour. They have become quite helpful in maintaining social distancing measures.

Of course, these services are not new. Pickup and delivery of products have been around for a while but the pandemic has highlighted the effectiveness of these services, both for consumers and retailers. And therefore, retailers have modified these services to offer more flexibility and ease to customers. The services now come with contactless delivery, low-contact pickup and cashless payments in a bid to reduce interaction.

Drone & Automated Delivery to Get a Boost

Several online delivery operators have come out with contactless solutions to survive in this turbulent market. However, if the virus lingers for a longer period, the lack of delivery personnel could be a key headwind.

Therefore, Internet-based delivery operators are making sincere efforts to resort to drones and automated delivery options. Remarkably, companies like FedEx (FDX - Free Report) and United Parcel Service (UPS - Free Report) are already testing their drones and automated delivery channels.

These apart, companies like Alibaba (BABA - Free Report) , and Alphabet’s Google, among others, have already introduced drones in the e-commerce market. Also, Amazon (AMZN - Free Report) recently received an approval from the Federal Aviation Administration that allowed it to test commercial deliveries through its drone fleet.

We believe the massive business disruptions caused by the coronavirus outbreak are expected to open up solid growth opportunities for contactless-delivery providers, particularly in the retail and e-commerce space.

Stocks to Watch

Cincinnati-based The Kroger Co. (KR - Free Report) has witnessed a surge in the demand for groceries and essential products over the past few months, as more people are now cooking meals at home instead of eating out. The company has added an array of services such as contactless deliveries, contactless payment options such as Kroger Pay and low-contact pickups to fight the pandemic.

Kroger has been expanding contact-free payment solutions like Scan, Bag and Go and Kroger Pay. The company is making every possible effort to meet the rising demand for Pickup orders that helps in minimizing person-to-person interaction. It also started accepting Supplemental Nutrition Assistance Program benefits for pickup orders. Markedly, Kroger’s digital sales surged 108% during third-quarter fiscal 2020, with pickup or delivery reaching more than 98% of Kroger households.

Its expected earnings growth rate for the current year is 6.3%. The Zacks Consensus Estimate for the company’s earnings for the current year has moved 2.1% north in the past 60 days. Kroger currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Global Payments Inc. (GPN - Free Report) was incorporated in Georgia as Global Payments Inc. in 2000 and spun-off from the former parent company in 2001. The company 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’s impact on the business. Its operating cash flows have been improving over the years, thereby boosting investments in technology. A strong solvency position also bodes well.

The company’s expected earnings growth rate for the next year is 18.3%. The Zacks Consensus Estimate for earnings for the current year has improved 1.4% over the past 60 days. The company has a Zacks Rank #3.

Retail chain, Walmart Inc. (WMT - Free Report) is gaining from rising demand for grocery and general merchandise amid the pandemic. Stay-at-home trends have boosted its e-commerce sales, which soared 79% in the U.S. segment for third-quarter fiscal 2021.

Clearly, Walmart’s efforts to enhance deliveries are yielding results. In this regard, the company has taken many efforts. It has reserved an hour daily to cater to curbside pickup orders for people deemed most at-risk of coronavirus infection. Recently, Walmart tested the use of drones for contactless delivery of COVID-19 test kits in Las Vegas. The service will provide on-demand deliveries of certain health and wellness-related products, with a scope to include general merchandise in the future.

The company’s expected earnings growth rate for the next year is 5.5%. The Zacks Consensus Estimate for earnings for the current year has improved 3.7% over the past 60 days. It has a Zacks Rank #3 at present.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>