For Immediate Release
Chicago, IL – May 9, 2022 – Today, Zacks Equity Research discusses like Visa Inc. (
V Quick Quote V - Free Report) , Mastercard Inc. ( MA Quick Quote MA - Free Report) , Fiserv Inc. ( FISV Quick Quote FISV - Free Report) , Fidelity National Information Services, Inc. ( FIS Quick Quote FIS - Free Report) and Global Payments Inc. ( GPN Quick Quote GPN - Free Report) . Industry: Financial Transactions
Financial Transaction Services industry is likely to grow on the back of higher consumer spending and surging adoption of digital payment methods. Despite the growth potentials, inflation woes, rising costs and intensifying competition are a few headwinds currently faced by the industry players.
Also, geopolitical elements like the Russia-Ukraine conflict, which is negatively impacting the global economic activities, are inducing uncertainties in the short run for the financial transaction services providers. Despite such woes, leading companies like
Visa Inc., Mastercard Inc., Fiserv Inc., Fidelity National Information Services, Inc.and Global Payments Inc. seem relatively stronger to fend off the downtrends. 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 Pivotal for Shaping the Financial Transaction Industry's Future As competition in the Financial Transaction Services space is getting fierce, market capture will remain a primary objective for the industry players. Heavy investments in technology, advertisements, client benefits and other heads will be the mainstay of the industry players. Investments in mobile and in-app payment technologies, new authentication technologies like biometrics, improvement of risk tools and solutions, and the ease of real-time payments services will continue. High Costs to Weigh on Margins:
Also, global crises like the war on Ukraine and COVID lockdowns in China and other Asian countries will keep aggravating the supply-chain disruptions, pushing up costs for financial transactions providers who run large global payments networks. The high expenses will keep eating into these companies' profits.
Mergers and acquisitions are abounding in the Financial Transaction Services industry as companies try to expand the scale to capture a larger market share. Industry players in this space take initiatives to explore capabilities beyond their individual niches and diversify their product offerings. Consolidation:
This is important to bolster one's presence in the market and having a varied portfolio enables fetching higher revenues. These companies also acquire technology development firms to amplify their product baskets. Consolidation activities, in turn, are likely to aid margins in the long run.
As cryptocurrencies continue to gain more popularity, the financial transaction companies will witness a surge in demand for decentralized money. Companies with long-term vision are expected to keep investing in this digital currency in the coming days and take measures to include crypto products in their portfolios. Cryptocurrency:
At 2021-end, Visa unveiled Global Crypto Advisory Practice to assist clients and partners with financial decisions regarding crypto products. Mastercard also supports crypto-funded Mastercard payment cards to provide flexible payment options. Investors' optimism on cryptocurrency, an alternative mode of payment unaffected by the pandemic, also indicates that it might become a common investment option soon.
As the world economy is rapidly recovering from the pandemic blues, thanks to massive vaccination programs undertaken worldwide, businesses of different sizes are witnessing an increasing footfall. Also, growth in e-commerce witnessed during the pandemic is likely to stay put. Higher pent-up demand and increased personal savings are expected to drive transaction volumes of the financial transaction services stocks. Nevertheless, the Fed rate hikes (twice since March), targeted to fight inflation, might lead to higher savings and lower transaction volumes. Resumption of Business Activities: Zacks Industry Rank Signals Drab Prospects
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 #195, which places it at the bottom 23% 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 a 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 26.8% over the past year.
Despite the murky 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 the valuation picture.
Industry Outperforms Sector, Underperforms S&P 500
The Zacks Financial Transaction Services industry has remained below the Zacks S&P 500 composite but fared better than its own sector over the past year.
The stocks in this industry have collectively decreased 30.1% in the past year, while the Business Services sector has declined 49.3%. Meanwhile, the Zacks S&P 500 composite has gained 1.4%.
Industry's Current Valuation
On the basis of the forward 12-month Price/Earnings ratio, which is commonly used for valuing financial transaction stocks, the industry is currently trading at 23.06X compared with the S&P 500's 18.60X and the sector's 25.78X.
Over the last five years, the industry traded as high as 32.25X, as low as 20.87X and at the median of 25.08X.
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 Inc.: Based in San Francisco, CA, Visa operates as a payments technology company operating all over the world. V continues to benefit from acquisitions, expanding business volumes, investment in digital technology and a solid balance sheet. Even though the stock has declined 5.3% in the year-to-date period, V is making all the right moves to grow in the coming days. Its series of buyouts and alliances poise it well for bottom-line growth.
Rising payments volume in Visa's network is a good sign for investors. The Zacks Consensus Estimate for the current-year revenues is pegged at $28.6 billion, indicating a 18.7% rise from the year-ago tally. The consensus mark for current-year earnings indicates a 20.8% improvement form the year-ago actuals to $7.14 per share. V's earnings beat estimates in each of the last four quarters, the average being 8.4%.
Mastercard Inc.: Headquartered in Purchase, NY, Mastercard is gaining from solid demand for digital and contactless solutions. Investment in technology keeps Mastercard at the forefront of the rapidly-evolving payments industry. MA is well-poised to benefit from its consistent cash-generating abilities from operations on the back of growing business volumes. Even though the stock has declined 1.7% in the year-to-date period, its product-diversification and geographic-expansion initiatives augur well for the long run.
Demand for Mastercard's services offerings, including cybersecurity and data analytics capabilities is on the rise. The Zacks Consensus Estimate for 2022 revenues is pegged at $22.2 billion, indicating a 17.3% increase from the year-ago reported figure. The consensus mark for current-year earnings indicates a 24.9% improvement to $10.49 per share from the year-ago finals. MA's bottom line beat estimates in each of the last four quarters, the average being 14.2%.
Fiserv Inc.: Based in Brookfield, WI, Fiserv provides financial services technology solutions to more than 12,000 clients worldwide in the banking, insurance, healthcare and investment industries. Its diversified product portfolio will continue to yield a steady flow of clients. Even though the stock has declined 4.1% in the year-to-date period, growing Zelle transactions and Debit transactions indicate more customer additions in the coming days.
Fiserv's consistent shareholder value boosting moves like share buybacks bode well. The Zacks Consensus Estimate for 2022 revenues is pegged at $16.5 billion, indicating a 7.1% increase from the year-ago reported figure. The consensus mark for current-year earnings indicates a 16.1% improvement to $6.48 per share from the year-ago reported figure. FISV's earnings beat estimates in each of the last four quarters, the average being 3.3%.
Fidelity National: Headquartered in Jacksonville, FL, Fidelity National provides banking and payments technology solutions, processing services and information-based services to the financial services industry. FIS continues to benefit from a superior product portfolio and digitization efforts. Even though the stock has declined 7.9% in the year-to-date period, it seems undervalued right now than the broader industry's average in terms of forward 12-month price to earnings.
FIS prioritizes long-term growth via its ongoing investments in technology and innovation across high-growth markets to expand its total addressable market. The Zacks Consensus Estimate for current year revenues is pegged at $14.8 billion, indicating a 6.9% rise from the year-earlier reading. The consensus mark for current-year earnings indicates an 11.8% improvement to $7.32 per share from the prior-year reported number. FIS' bottom line beat estimates in each of the last four quarters, with the average being 2.3%.
Global Payments: Based in Atlanta, GA, Global Payments focuses on top-tier strategic partnerships to grow its business and future-proof its underlying technology. Its strong investment-grade balance sheet in combination with its stable free cash flow generation provides GPN with ample capital and financial flexibility to navigate through turbulent times. Even though the stock has declined 6.9% in the year-to-date period, its robust technology solutions will make it stand out in the marketplace and position it well for continued growth.
The Zego acquisition exposed Global Payments to a market worth $1 trillion. The Zacks Consensus Estimate for 2022 revenues is pegged at $8.4 billion, indicating an 8.9% increase from the year-ago reported figure. The consensus mark for current-year earnings indicates a 16.9% improvement to $9.54 per share from the year-ago reported level. GPN's earnings beat estimates in each of the last four quarters, the average being 3.1%.
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