Back to top

Image: Bigstock

Will Muted Consumer Confidence Beat Down Payment Stocks?

Read MoreHide Full Article

The COVID-19 breakout has certainly destabilized the global economy. Numerous industries, namely Auto, Pharma, Electronics, Tourism & Aviation, Technology, Restaurants, Cosmetics and Apparel took a massive hit and the payments industry is certainly not an outlier.

The payments space derives bulk of its revenues from processing payment transactions. However, random closures and ramped-down activities following the cororavirus spread saw businesses running dry. Also, with consumers staying home and cutting back on their purchases, the payments industry is dealt a heavy blow.

Further, the consumer confidence index gauging their optimism level about their finances and the state of the economy, recently painted a gloomy picture.

Per the University of Michigan data, consumer sentiment was bearish with the index dropping to 89.1 in March from 101 in February. Market pundits predict a steeper fall next month if the spread of the virus is not contained that already taxed employment and household income heavily.  Also, a record number of 3.3 million Americans filed for unemployment benefits in the week ending Mar 21, signaling a sharp spike in unemployment levels.

Downbeat sentiment and the rising incidence of job losses will surely hurt consumer spending activity. For instance, U.S. retail sales for February witnessed the steepest decline since December 2018. Industry experts are apprehending more pain ahead as businesses remain shut and Americans persistently restrict their buying capacities to essential commodities as well as avoid visiting public places like restaurants, theatres and malls.

These trends will weaken payments transactions, one of the main revenue drivers for companies like Visa Inc. (V - Free Report) , Mastercard Inc. (MA - Free Report) , American Express Co. (AXP - Free Report) among others.

Players Taking a Huge Hit

Industry leaders like Visa, Mastercard, American Express, PayPal Holdings, Inc. (PYPL - Free Report) , all made a downward revision to their earnings guidance, caused by a shrinkage in cross-border business as travel remains suspended.

Visa’s U.S. payments volume has contracted 4%  this month to date from the year-earlier level. Management stated that it expects operating expense growth in high single digits and earnings per share growth in the upper end of low single digits. Earlier this month, Visa had already warned that its second-quarter 2020 revenue growth will be sluggish than its previous forecast.

American Express is making an effort to cease hiring in a bid to control its expenses at a time when top-line growth is difficult to achieve. The company trimmed its guidance with the expectation that its first-quarter 2029 revenue growth should come in at 2-4%, indicating a decrease from around 9% in the fourth quarter of 2019   Adjusted earnings are projected between $1.90 and $2.10 per share.

Last week, Mastercard issued a second revenue alert for the first quarter. Management now expects its first-quarter net revenue growth in the low-single-digit range. The company also suspended its annual 2020 outlook for net revenues.

Any Relief in Sight

Even though it is hard to foresee the COVID-19-led uncertainty, its effects, duration and repercussions, the near-to-medium term anxiety is likely to persist. The $2. -trillion worth economic stimulus by the government will to some extent offer relief and might bring about a spurt in the spending levels, spurring business opportunities for the payment stocks. However, a total business recovery will take ample time.

Though the payment industry is primed for long-term growth given the secular shifts in payment modes from cash and physical to digital, the short-term coronavirus-induced crunch will keep the stock movement volatile.

Amog the stocks mentioned above Visa, Mastercard and PayPal each carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Top 10 Stocks for 2020

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?

Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

Access Zacks Top 10 Stocks for 2020 today >>