The payments industry, which is largely dependent on consumer spending, is set to thrive on the recently reported strong consumer confidence data.
Strong Consumer Confidence
According to the Conference Board, the consumer confidence index for the month of February 2019 climbed to 131.4 from a revised 121.7 in January. The key economic indicator that measures attitude on economic prospects exceeded analysts’ expectations of a 124.7 reading and has rebounded after three straight months of decline.
People’s confidence in the present situation improved from 170.2 last month to 173.5 in February, which is an 18-year high. The future expectations index also increased from 89.4 to 103.4, the largest monthly gain since 2011. Consumers’ optimism was largely driven by strength in the labor market.
Increase in Spending to Boost Online Payment Transactions
Such a record consumer confidence number is significant since the index has been, historically, good at predicting consumer spending over the next three to six months. The more confidence households generate, the more they are likely to spend. Notably, consumer spending accounts for roughly 70% of the U.S. economy.
Given the increased speed, ease, flexibility and popularity of the use of cards and online modes of making payments, the share of e-commerce has been increasing consistently in recent years. Often e-commerce sales include online payments via debit or credit cards, from bank accounts or even contactless methods. The proliferation of technology has led to an increase in e-commerce in the recent years, which in turn has given a boost to digital payments.
The impact and influence of digital payments are expanding rapidly, fueled by the proliferation of smart connected devices, adoption of technology that enables payments in new environments, and growth in under penetrated payment segments.
Per Statista, in 2018, online sales of physical goods amounted to $504.6 billion and are projected to surpass $735 billion in 2023. Apparel and accessories retail e-commerce in the United States is projected to generate over $138.7 billion in revenues by 2022.
Since the payments industry is positioned to benefit from this promising reading on confidence level, picking stocks from the same will be a smart move.
Global Payments Inc. (GPN - Free Report) with a Zacks Rank of 2, is a credit card processor, merchant acquirer and bank credit card issuer. The company provides payment processing, merchant and related payment services to financial and nonfinancial institutions in the United States, Europe, Canada, Mexico and internationally. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company witnessed a revenue CAGR of 11% from 2008 to 2018. The top line should see further upside from a strong market position and attractive core business that continues to be driven by new deals, renewed agreements, accretive acquisitions and expansion of service offerings. The stock has risen 16% in a year’s time, almost the same as its industry.
Euronet Services Inc. (EEFT - Free Report) is an industry leader in providing secure electronic financial transaction solutions. The company offers financial payment middleware, financial network gateways, outsourcing and consulting services to financial institutions and mobile operators.
The company’s strong position is backed by constant expansion across the globe through strategic acquisitions, strong results of the Electronic Funds Transfer (EFT) and Money Transfer segments. Its revenues have been growing consistently over the past few years on the back of diversity across products and geographies.
The stock has gained a whopping 58% in a year’s time against its industry’s decline of 13%. It carries a Zacks Rank #2 (Buy) and has witnessed a 0.9% upward revision in 2019 earnings estimates.
Fidelity National Information Servcies, Inc. (FIS - Free Report) provides payment solution among a host of other services. It remains well positioned for growth backed by its attractive core business with a recurring revenue model, digitization and several ongoing strategic initiatives. Further, the company's international exposure will support revenue growth. Its strong capital position keeps the company well poised to undertake opportunistic expansion strategies.
The stock has gained 8% in a year’s time compared with its industry’s growth of 16%. It carries a Zacks Rank #1 (Strong Buy) and has witnessed 30% upward revision in 2019 earnings estimates over the past 30 days.
Credit Acceptance Corporation (CACC - Free Report) with a Zacks Rank #1 (Strong Buy) has been witnessing consistent revenue growth. Its top line has registered a five-year (2014-2018) CAGR of 15.5%. Growth is primarily attributable to continued rise in finance charges, which is also the main revenue component (accounting for 91.5% of total revenues in 2018). Given the increase in the demand for auto loans, finance charges are likely to continue improving, thereby supporting revenue growth.
The stock has gained 35% in a year’s time against the industry’s decline of 10.5%. It has witnessed a 6.2% upward revision in 2019 earnings estimates over the past 30 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
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