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Payment Processors Hit 52-Week High, Will the Rally Last?
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Stocks of payment processors, Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) and American Express Co. (AXP - Free Report) hit their respective 52-week high of $148.37, $218.82 and $110.01 per share, on Sep 14, 2018.
Strong economic growth, increase in spending, and high consumer sentiment are working in favor of these stocks. Apart from these macroeconomic factors, industry-wide changes like increasing digital payments, use of blockchain, artificial intelligence and Internet of things (IoT) bode well for the players that have been investing heavily in these areas.
Shares of Visa and Mastercard have gained 41% and 54%, respectively, in a year’s time compared with the industry's rally of 36.2%.
American Express has gained 25% against the industry’s decline of 3.9%.
A key to the growth in these stocks is an increase in retail sales powered by higher wages in a tight labor market along with an increase in savings and tax cuts. For the first eight months of 2018, retail sales trends were encouraging. In August, U.S. retail sales rose 0.1%, falling below the forecast of 0.4% by economists. This marked the smallest increase since February, according to the Commerce Department, as consumers held back purchases of motor vehicles and clothing. However, the upward revision in July retail sales data to a gain of 0.7% compared with the previous reported figure of 0.5%, was a positive.
A point worth noting in the August retail sales data was the increase in online sales, an area that holds ample scope for payment companies. This is because payments for purchases made online are mostly made via the networks of Visa and Mastercard.
Additionally, August data on wage growth were optimistic. Per the report, annual wage growth increased at its fastest pace in more than nine years in August. Also, the country witnessed a record 6.9 million job openings in July.
Expected Increase in Retail E-commerce Sales
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. Often e-commerce sales include the use of making online payments via debit or credit cards, from bank accounts or even via contactless methods.
Per Statista, e-commerce share as a percentage of total retail sales in the United States increased from 5.8% in 2013 to 9% in 2017 and is further expected to go up to 13.7% by the year 2021. Mastercard, Visa and American Express have invested heavily in information technology that should help them scoop up revenues from an expansion in e-commerce.
Use of AI, IoT, Blockchain
Blockchain, the technology behind the crypto currencies, is increasingly being used in the payments industry due to the speed, cost effectiveness and security it provides to transactions.
With the deployment of IoT, wearables, connected cars, and smart home devices to name a few can make digital payments. Visa and Mastercard have arrangements with Fitbit, Inc. , to power payment via Fitbit’s wearable. It is estimated that more than 20.4 billion devices will be connected to the Internet by 2020.
These players are also using artificial intelligence by the use of biometric scan such as facial recognition, iris scan and finger print to enable payments. Visa, Mastercard and American Express have been making partnerships and going ahead with technological innovation in this field.
Strong Consumer Confidence to Spur Retail Sales
The Conference Board Consumer Confidence Index, which measures consumers’ attitude toward current and short-term economic conditions (next six months) increased in August, following a modest increase in July. The index now stands at 133.4, up from 127.9 in July.
The surge in the index shows that the cadence of economic growth witnessed recently will continue. This should lead to higher consumer spending.
Moreover, The University of Michigan’s consumer sentiment index rose to 100.8 in September from 96.2, based on a preliminary reading. This reflects confidence of U.S consumers and is surely is a welcome sign for payment and network, which are the end beneficiaries of rising consumer spending and confidence.
Thus we do not see any major friction that these companies should face in the near future. Given their niche market positioning in a thriving industry, each of these stocks should continue to grow.
Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!
Much like petroleum 150 years ago, lithium battery power is set to 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, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.
Image: Bigstock
Payment Processors Hit 52-Week High, Will the Rally Last?
Stocks of payment processors, Visa Inc. (V - Free Report) , Mastercard Incorporated (MA - Free Report) and American Express Co. (AXP - Free Report) hit their respective 52-week high of $148.37, $218.82 and $110.01 per share, on Sep 14, 2018.
Strong economic growth, increase in spending, and high consumer sentiment are working in favor of these stocks. Apart from these macroeconomic factors, industry-wide changes like increasing digital payments, use of blockchain, artificial intelligence and Internet of things (IoT) bode well for the players that have been investing heavily in these areas.
Shares of Visa and Mastercard have gained 41% and 54%, respectively, in a year’s time compared with the industry's rally of 36.2%.
American Express has gained 25% against the industry’s decline of 3.9%.
A key to the growth in these stocks is an increase in retail sales powered by higher wages in a tight labor market along with an increase in savings and tax cuts. For the first eight months of 2018, retail sales trends were encouraging. In August, U.S. retail sales rose 0.1%, falling below the forecast of 0.4% by economists. This marked the smallest increase since February, according to the Commerce Department, as consumers held back purchases of motor vehicles and clothing. However, the upward revision in July retail sales data to a gain of 0.7% compared with the previous reported figure of 0.5%, was a positive.
A point worth noting in the August retail sales data was the increase in online sales, an area that holds ample scope for payment companies. This is because payments for purchases made online are mostly made via the networks of Visa and Mastercard.
Additionally, August data on wage growth were optimistic. Per the report, annual wage growth increased at its fastest pace in more than nine years in August. Also, the country witnessed a record 6.9 million job openings in July.
Expected Increase in Retail E-commerce Sales
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. Often e-commerce sales include the use of making online payments via debit or credit cards, from bank accounts or even via contactless methods.
Per Statista, e-commerce share as a percentage of total retail sales in the United States increased from 5.8% in 2013 to 9% in 2017 and is further expected to go up to 13.7% by the year 2021. Mastercard, Visa and American Express have invested heavily in information technology that should help them scoop up revenues from an expansion in e-commerce.
Use of AI, IoT, Blockchain
Blockchain, the technology behind the crypto currencies, is increasingly being used in the payments industry due to the speed, cost effectiveness and security it provides to transactions.
With the deployment of IoT, wearables, connected cars, and smart home devices to name a few can make digital payments. Visa and Mastercard have arrangements with Fitbit, Inc. , to power payment via Fitbit’s wearable. It is estimated that more than 20.4 billion devices will be connected to the Internet by 2020.
These players are also using artificial intelligence by the use of biometric scan such as facial recognition, iris scan and finger print to enable payments.
Visa, Mastercard and American Express have been making partnerships and going ahead with technological innovation in this field.
Strong Consumer Confidence to Spur Retail Sales
The Conference Board Consumer Confidence Index, which measures consumers’ attitude toward current and short-term economic conditions (next six months) increased in August, following a modest increase in July. The index now stands at 133.4, up from 127.9 in July.
The surge in the index shows that the cadence of economic growth witnessed recently will continue. This should lead to higher consumer spending.
Moreover, The University of Michigan’s consumer sentiment index rose to 100.8 in September from 96.2, based on a preliminary reading. This reflects confidence of U.S consumers and is surely is a welcome sign for payment and network, which are the end beneficiaries of rising consumer spending and confidence.
Thus we do not see any major friction that these companies should face in the near future. Given their niche market positioning in a thriving industry, each of these stocks should continue to grow.
American Express, Visa and Mastercard each carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Best Electric Car Stock? You'll Never Guess It.
Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!
Much like petroleum 150 years ago, lithium battery power is set to 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, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.
See Zacks Best EV Stock Free >>