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5 Financial Transaction Stocks to Watch Amid Booming Digitization
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The Financial Transaction Services industry is likely to be aided by the widespread adoption of digital means. An enhanced digital solutions suite enables industry players to capitalize on the trend. Consumer spending habits remain favorable, which may boost transaction volumes. In order to sustain one’s market position, technology investments are a must, which, in turn, boosts operational efficiencies and diversifies revenue streams for industry players. Companies like Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) , Fiserv, Inc. (FI - Free Report) , Global Payments Inc. (GPN - Free Report) and FLEETCOR Technologies, Inc. are placed well to gain from the industry's encouraging growth prospects.
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 Influencing the Financial Transaction Services Industry's Future
Widespread Adoption of Contactless Payment Methods: One of the most long-lasting trends brought about by the COVID-19 pandemic was consumers’ inclination toward contactless payments. Apart from benefiting consumers, the shift proved to be a boon for financial transaction services players as well. With cash and checks taking a backseat, the industry participants came up with several flexible digital payment options such as cryptocurrency, biometrics, QR codes and buy now, pay later solutions. As a result, they benefited from an expanding customer base and diversified revenue streams. A higher Internet penetration rate and greater usage of smartphones are expected to sustain the solid demand for digital payment methods in the days ahead.
Favorable Consumer Spending: The uptick in consumer spending reflects increased utilization of product and services suite of the industry participants. Therefore, the resultant benefit of increased consumer spending is reaped by them in the form of processing higher transaction volumes and subsequently earning higher revenues. Per the U.S. Bureau of Economic Analysis' advance estimate for the third quarter of 2023, consumer spending improved on the back of higher utilization of goods and services. It was also one of the reasons behind the annual growth rate of 4.9% observed in real gross domestic product during third-quarter 2023. A tight labor market resulting in strong wage gains and a booming e-commerce environment may also have driven consumer sentiment to spend more. However, inflationary headwinds can exert strain on the purchasing power of consumers.
Technology Advancements: The Financial Transaction Services space is compelled to undertake heavy technology investments in order to counter the intensifying competition to sustain one’s leading market position. Digital payments have become the preferred means, owing to the ease and convenience that they provide. However, growing digitization often invites sophisticated forms of cybercrimes that result in substantial losses and compromise of confidential data on the part of both consumers and merchants. Therefore, apart from building a solid payment solutions suite, the industry participants also remain equipped with effective fraud prevention solutions. An elevated expense level resulting from such technology investments might put a dent in their margins.
Pursuit of a M&A Strategy: For building a digital solutions suite, the Financial Transaction Services industry players resort to a merger and acquisition (M&A) strategy in addition to undertaking technology investments. These initiatives are essential means to expand capabilities, bring diversification benefits, boost customer base and solidify global presence. However, the Fed is implementing rate hikes in order to tame the continued inflationary headwinds, which, in turn, are increasing financing costs and making it difficult for firms to take loans, on which they often depend for pursuing M&A deals.
Zacks Industry Rank Instills Optimism
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bright 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 #95, which places it in the top 39% 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.
Before we present a few stocks that you may want to buy or retain in your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Zacks Financial Transaction Services industry has outperformed its sector but underperformed the Zacks S&P 500 composite in the past year.
In the said time frame, the industry has gained 3.3% against the Business Services sector’s decline of 0.5%. The S&P 500 has gained 7.5% in the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
On the basis of the forward 12-month Price/Earnings ratio, commonly used for valuing financial transaction services stocks, the industry is currently trading at 19.02X compared with the S&P 500’s 17.5X and the sector’s 21.33X.
Over the last five years, the industry traded as high as 22.22X, as low as 19.02X and at the median of 18.58X.
Forward 12-Month Price/Earnings (P/E) Ratio
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
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 #2 (Buy) or Zacks Rank #3 (Hold). Considering the current industry scenario, it might be prudent for investors to buy or retain these stocks in their portfolio, as these are well-placed to generate growth in the long haul.
Fiserv: Based in Brookfield, WI, Fiserv provides a varied array of products and services, including payment processing, core banking systems, digital banking solutions, and more. The diverse product and service portfolio enables the Zacks Rank #2 company to serve various segments of the financial services industry, including banks, credit unions, wealth management firms, payment processors, and more. Fiserv continues to expand its product portfolio through strategic acquisitions. Its financial strength enables business investments.
The Zacks Consensus Estimate for Fiserv’s 2023 earnings is pegged at $7.48 per share, indicating a 15.3% rise from the year-ago reported figure. FI’s earnings beat estimates in two of the last four quarters and matched the mark twice, the average being 0.58%. Its shares have advanced 9.9% in the past year.
Price and Consensus: FI
Image Source: Zacks Investment Research
Visa: Based in San Francisco, Visa is one of the world’s leaders in digital payments. Numerous acquisitions, alliances and expanding payments volume continue to drive revenues of the Zacks Rank #3 company. Several digital solutions such as Visa Token Service, Visa Checkout and Visa In-App Provisioning have been developed by V in recent years to upgrade its digital platform. A strong financial position equips it to undertake significant technology investments. Its shares have gained 12.6% in the past year.
The Zacks Consensus Estimate for Visa’s fiscal 2024 earnings is pegged at $9.86 per share, indicating a 12.4% rise from the fiscal 2023 reported figure. V’s earnings beat estimates in each of the last four quarters, the average being 5.35%.
Price and Consensus: V
Image Source: Zacks Investment Research
Mastercard: The Purchase, NY-based company frequently resorts to tie-ups with financial institutions or undertakes significant investments to occupy a significant share in the global payments market. And the presence of a worldwide trusted company like MA encourages more consumers to adopt newer forms of digital payments in their daily lives. This Zacks Rank #3 company has always remained at the forefront and utilized technologies and security protocols to devise solutions for seamless digital shopping and selling experiences on the part of both consumers and merchants. Its shares have risen 13.5% in the past year.
The Zacks Consensus Estimate for Mastercard’s 2023 earnings is pegged at $12.14 per share, indicating a 14% rise from the year-ago reported figure. MA’s earnings beat estimates in each of the last four quarters, the average being 3.55%.
Price and Consensus: MA
Image Source: Zacks Investment Research
Global Payments: Headquartered in Atlanta, GA, Global Payments is well-poised for growth on the back of solid contributions from Merchant Solutions, Issuer Solutions and Consumer Solutions segments. The uptick in transaction volumes stemming from continued economic recovery and widespread utilization of digital payment solutions provides an impetus to its revenues. This Zacks Rank #3 company has resorted to acquisitions and partnerships to bolster its capabilities and geographical presence. Continued technology advancements can result in cost savings for GPN. Even though its shares have plunged 22.9% in the past year, strong fundamentals are likely to help it bounce back in the days ahead.
The Zacks Consensus Estimate for Global Payments’ 2023 earnings is pegged at $10.40 per share, indicating an 11.6% rise from the year-ago figure. GPN’s earnings beat estimates in two of the last four quarters and missed the mark twice, the average being 1.07%.
Price and Consensus: GPN
Image Source: Zacks Investment Research
FLEETCOR Technologies: Based in Atlanta, GA, FLEETCOR’s top line benefits on the back of higher transaction volumes and new sales growth. Higher revenues per transaction across certain of its payment program also contribute to top-line growth. Solid organic revenue growth results from strength across FLT’s product categories - fuel, corporate payments, tolls and lodging. This Zacks Rank #3 company also pursues acquisitions and investments on a global scale to expand its customer base, workforce and operational capabilities as well as diversify its services portfolio. Shares of FLT have rallied 19.6% in the past year.
The Zacks Consensus Estimate for FLEETCOR’s 2023 earnings is pegged at $16.97 per share, indicating a 5.4% rise from the year-ago reported figure. FLT’s earnings beat estimates in each of the last four quarters, the average being 1.93%.
Price and Consensus: FLT
Image Source: Zacks Investment Research
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5 Financial Transaction Stocks to Watch Amid Booming Digitization
The Financial Transaction Services industry is likely to be aided by the widespread adoption of digital means. An enhanced digital solutions suite enables industry players to capitalize on the trend. Consumer spending habits remain favorable, which may boost transaction volumes. In order to sustain one’s market position, technology investments are a must, which, in turn, boosts operational efficiencies and diversifies revenue streams for industry players. Companies like Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) , Fiserv, Inc. (FI - Free Report) , Global Payments Inc. (GPN - Free Report) and FLEETCOR Technologies, Inc. are placed well to gain from the industry's encouraging growth prospects.
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 Influencing the Financial Transaction Services Industry's Future
Widespread Adoption of Contactless Payment Methods: One of the most long-lasting trends brought about by the COVID-19 pandemic was consumers’ inclination toward contactless payments. Apart from benefiting consumers, the shift proved to be a boon for financial transaction services players as well. With cash and checks taking a backseat, the industry participants came up with several flexible digital payment options such as cryptocurrency, biometrics, QR codes and buy now, pay later solutions. As a result, they benefited from an expanding customer base and diversified revenue streams. A higher Internet penetration rate and greater usage of smartphones are expected to sustain the solid demand for digital payment methods in the days ahead.
Favorable Consumer Spending: The uptick in consumer spending reflects increased utilization of product and services suite of the industry participants. Therefore, the resultant benefit of increased consumer spending is reaped by them in the form of processing higher transaction volumes and subsequently earning higher revenues. Per the U.S. Bureau of Economic Analysis' advance estimate for the third quarter of 2023, consumer spending improved on the back of higher utilization of goods and services. It was also one of the reasons behind the annual growth rate of 4.9% observed in real gross domestic product during third-quarter 2023. A tight labor market resulting in strong wage gains and a booming e-commerce environment may also have driven consumer sentiment to spend more. However, inflationary headwinds can exert strain on the purchasing power of consumers.
Technology Advancements: The Financial Transaction Services space is compelled to undertake heavy technology investments in order to counter the intensifying competition to sustain one’s leading market position. Digital payments have become the preferred means, owing to the ease and convenience that they provide. However, growing digitization often invites sophisticated forms of cybercrimes that result in substantial losses and compromise of confidential data on the part of both consumers and merchants. Therefore, apart from building a solid payment solutions suite, the industry participants also remain equipped with effective fraud prevention solutions. An elevated expense level resulting from such technology investments might put a dent in their margins.
Pursuit of a M&A Strategy: For building a digital solutions suite, the Financial Transaction Services industry players resort to a merger and acquisition (M&A) strategy in addition to undertaking technology investments. These initiatives are essential means to expand capabilities, bring diversification benefits, boost customer base and solidify global presence. However, the Fed is implementing rate hikes in order to tame the continued inflationary headwinds, which, in turn, are increasing financing costs and making it difficult for firms to take loans, on which they often depend for pursuing M&A deals.
Zacks Industry Rank Instills Optimism
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bright 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 #95, which places it in the top 39% 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.
Before we present a few stocks that you may want to buy or retain in your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Zacks Financial Transaction Services industry has outperformed its sector but underperformed the Zacks S&P 500 composite in the past year.
In the said time frame, the industry has gained 3.3% against the Business Services sector’s decline of 0.5%. The S&P 500 has gained 7.5% in the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
On the basis of the forward 12-month Price/Earnings ratio, commonly used for valuing financial transaction services stocks, the industry is currently trading at 19.02X compared with the S&P 500’s 17.5X and the sector’s 21.33X.
Over the last five years, the industry traded as high as 22.22X, as low as 19.02X and at the median of 18.58X.
Forward 12-Month Price/Earnings (P/E) Ratio
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
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 #2 (Buy) or Zacks Rank #3 (Hold). Considering the current industry scenario, it might be prudent for investors to buy or 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.
Fiserv: Based in Brookfield, WI, Fiserv provides a varied array of products and services, including payment processing, core banking systems, digital banking solutions, and more. The diverse product and service portfolio enables the Zacks Rank #2 company to serve various segments of the financial services industry, including banks, credit unions, wealth management firms, payment processors, and more. Fiserv continues to expand its product portfolio through strategic acquisitions. Its financial strength enables business investments.
The Zacks Consensus Estimate for Fiserv’s 2023 earnings is pegged at $7.48 per share, indicating a 15.3% rise from the year-ago reported figure. FI’s earnings beat estimates in two of the last four quarters and matched the mark twice, the average being 0.58%. Its shares have advanced 9.9% in the past year.
Price and Consensus: FI
Image Source: Zacks Investment Research
Visa: Based in San Francisco, Visa is one of the world’s leaders in digital payments. Numerous acquisitions, alliances and expanding payments volume continue to drive revenues of the Zacks Rank #3 company. Several digital solutions such as Visa Token Service, Visa Checkout and Visa In-App Provisioning have been developed by V in recent years to upgrade its digital platform. A strong financial position equips it to undertake significant technology investments. Its shares have gained 12.6% in the past year.
The Zacks Consensus Estimate for Visa’s fiscal 2024 earnings is pegged at $9.86 per share, indicating a 12.4% rise from the fiscal 2023 reported figure. V’s earnings beat estimates in each of the last four quarters, the average being 5.35%.
Price and Consensus: V
Image Source: Zacks Investment Research
Mastercard: The Purchase, NY-based company frequently resorts to tie-ups with financial institutions or undertakes significant investments to occupy a significant share in the global payments market. And the presence of a worldwide trusted company like MA encourages more consumers to adopt newer forms of digital payments in their daily lives. This Zacks Rank #3 company has always remained at the forefront and utilized technologies and security protocols to devise solutions for seamless digital shopping and selling experiences on the part of both consumers and merchants. Its shares have risen 13.5% in the past year.
The Zacks Consensus Estimate for Mastercard’s 2023 earnings is pegged at $12.14 per share, indicating a 14% rise from the year-ago reported figure. MA’s earnings beat estimates in each of the last four quarters, the average being 3.55%.
Price and Consensus: MA
Image Source: Zacks Investment Research
Global Payments: Headquartered in Atlanta, GA, Global Payments is well-poised for growth on the back of solid contributions from Merchant Solutions, Issuer Solutions and Consumer Solutions segments. The uptick in transaction volumes stemming from continued economic recovery and widespread utilization of digital payment solutions provides an impetus to its revenues. This Zacks Rank #3 company has resorted to acquisitions and partnerships to bolster its capabilities and geographical presence. Continued technology advancements can result in cost savings for GPN. Even though its shares have plunged 22.9% in the past year, strong fundamentals are likely to help it bounce back in the days ahead.
The Zacks Consensus Estimate for Global Payments’ 2023 earnings is pegged at $10.40 per share, indicating an 11.6% rise from the year-ago figure. GPN’s earnings beat estimates in two of the last four quarters and missed the mark twice, the average being 1.07%.
Price and Consensus: GPN
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for FLEETCOR’s 2023 earnings is pegged at $16.97 per share, indicating a 5.4% rise from the year-ago reported figure. FLT’s earnings beat estimates in each of the last four quarters, the average being 1.93%.
Price and Consensus: FLT
Image Source: Zacks Investment Research