The financial services industry has transformed significantly in the recent years, considering the notable changes in transaction techniques. Technology is playing a major role, with digitalization taking center stage. Digitalization of banking and payment services has made it easier for people to conduct transactions.
With the market adapting a quantitative approach to save time, reduce operating expenses and increase work efficiency, companies in this industry should benefit. The Zacks Financial Transaction Services industry currently carries a Zacks Industry Rank #33, which places it in the top 13% of more than 250 Zacks industries and indicates solid near-term growth prospects.
Given this backdrop, it is not a bad idea to undertake a comparative analysis of two Financial Transaction Services stocks — Fiserv, Inc. (FISV - Free Report) and WEX Inc. (WEX - Free Report) . Both the stocks are part of the broader Zacks Business Services sector (one of the 16 Zacks sectors). While Fiserv has a market capitalization of $28.65 billion, WEX’s market cap is $5.95 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fiserv clearly scores over WEX in terms of price performance. So far this year, shares of Fiserv have gained 11.4%, outperforming the 7.3% rise of the industry it belongs to. Shares of WEX have declined 0.9% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
WEX’s fourth-quarter earnings are projected to grow 41.6% compared with 21.1% for Fiserv. Looking at the full-year 2018 picture, WEX’s earnings are projected to grow 51.6% while that of Fiserv are expected to increase 22.3%. For 2019, WEX’s earnings are expected to register 15.5% growth compared with 12.1% for Fiserv.
Thus, WEX has an edge over Fiserv in terms of quarterly and yearly projected earnings growth.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.
WEX and Fiserv have an impressive earning surprise history, with WEX’s earnings surpassing the Zacks Consensus Estimate in each of the previous four quarters. Fiserv’s earnings outpaced the consensus mark in three of the past four quarters.
However, WEX delivered a higher average positive earnings surprise of 3.3% compared with 1.5% for Fiserv.
Earnings Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Based on fourth-quarter and full-year earnings estimate revisions in the past 90 days, WEX is better placed.
The Zacks Consensus Estimate for fourth-quarter 2018 earnings has increased 1.9% for WEX compared with an increase of 1.2% for Fiserv. For 2018, estimates for WEX have increased 1.4%, the same for Fiserv have remained unchanged. For 2019, estimates for WEX have increased 0.9%, the same for Fiserv have remained unchanged.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
While Fiserv has a TTM net margin of 25%, the same stands at 15.6% for WEX.
Though both the stocks compare unfavorably with the industry’s figure of 40%, Fiserv has a higher TTM net margin than WEX.
The price to earnings ratio (P/E) metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is considered better than a higher one.
The trailing 12-month price-to-earnings multiple for Fiserv and WEX is 24.6 and 20.1, respectively, while that of the industry’s is 24.8. The numbers clearly imply that WEX is not only cheaper than Fiserv but also undervalued compared to the industry it belongs to.
Our comparative analysis shows that WEX scores over Fiserv in terms of earnings estimate revisions, earnings surprise history and quarterly and yearly projected earnings growth. Fiserv has an edge in terms of price performance and net margin.
However, a faster share price rally on a year-to-date basis has led to a rich valuation for Fiserv compared with WEX.
Stocks to Consider
Some better-ranked stocks in the broader Zacks Business Services sector are Interpublic (IPG - Free Report) , Automatic Data Processing (ADP - Free Report) and Navigant Consulting (NCI - Free Report) , each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Interpublic, Automatic Data Processing and Navigant is 7.4%, 12.5% and 13.5%, respectively.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>