The financial transaction service providers have reported a decent performance in the first nine months of 2017 backed by a thriving U.S. economy, lower unemployment, reduced inflation, healthy consumer confidence, which resulted in improved business volumes. Increased investment in information technology and growing demand for online payments significantly spurred transaction volume growth.
Moreover, the recent tax reform policy that lowered corporate tax to 21% from 35%, although might result in one-time charge for some companies, is expected to benefit the players in the long term.
The new European rules on online payments and banking, allowing retailers and consumers to bypass banks by authorizing payments directly from personal accounts, might result in reduced costs and enhanced scope of offering for the payment processors.
Factors Affecting Q4 Results
Economic growth in the United States has resulted in higher disposable income, leading to greater customer spending. This is expected to propel the companies’ transaction sales volume in the fourth quarter.
The payment processors have also gained from alternative payment modes like e-wallets, electronic payments as well as cryptocurrencies that provide customers with greater transaction security, flexibility, accessibility, touch-points and speed, all at a lower cost. Huge investments in technology to meet the changing demand of customers have resulted in the development of new and emerging cutting-edge technologies.
Another major attribute of the industry is inorganic growth.The payment processors have been consolidating through mergers and acquisitions, strategic alliances and partnerships to expand their operations globally. However, international operations have exposed the players to foreign exchange volatility. The recent tax cut is also likely to result in one-time tax on the companies’ unrepatriated overseas earnings.
Increased investment in technology, marketing and promotional activities as well as consolidation-related expenses have led to a continuous rise in operating costs. This is likely to put pressure on the bottom line in the fourth quarter.
Industry Rank and Price Performance
The industry is booming, which is evident from its rally of 38.4% in a year compared with 21.4% gain registered by the S&P 500. Therefore, stocks in this industry are likely to generate fair returns over time.
Stocks to Consider
We have zeroed in on four stocks from the industry that are poised for an earnings beat in fourth-quarter 2017. Our proven model shows that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 (Hold), when combined with a positive Earnings ESP, has the potential to beat earnings expectations. Moreover, these stocks have witnessed upward estimate revisions for 2018 earnings.
Mastercard Inc. (MA - Free Report) is an American multinational financial services corporation. The company has seen its Zacks Consensus Estimate for 2018 earnings being revised upward by 2% in the past 90 days. The company has an Earnings ESP of +0.77% and a Zacks Rank #3 that strengthen its potential for a beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
Total System Services, Inc. (TSS - Free Report) is a credit card processor, merchant acquirer and bank credit card issuer in the United States. The company has seen its Zacks Consensus Estimate for 2018 earning being revised upward by 1.7% over the last 90 days. The company has an Earnings ESP of +0.62% and a Zacks Rank #2 that increase its potential for a beat.
WEX Inc. (WEX - Free Report) is a provider of payment processing and information management services to the U.S. commercial and government vehicle fleet industry. The company has seen its Zacks Consensus Estimate for 2018 earnings being revised upward by 4.4% in the past 90 days. The company has an Earnings ESP of +0.54% and a Zacks Rank #3 that bolster its likelihood for a beat.
The Western Union Company (WU - Free Report) is an American financial services and communications company. The company has seen its Zacks Consensus Estimate for 2018 earning being revised upward by 2.8% over the last 90 days.The company has an Earnings ESP of +1.14% and a Zacks Rank #3 that strengthen its potential for a beat.
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