Payments’ companies witnessed an increase in card processing via their network given the strong retails sales numbers reported recently.
The increase in retail sales holds potential for payments' companies as transactions are increasingly being made online, through mobiles and via cards (debit as well as credit). All these imply increased use of payment networks and cards, which complete the entire payment loop.
Strong Retail Sales and Consumer Confidence Index
On Jun 14, the Department of Commerce reported that retail sales increased 0.5% in May. Although the metric lagged the consensus estimate of an increase of 0.7%, it still indicates a fare number. Moreover, retail sales in April were revised to a gain of 0.3% from a loss of 0.2%, marking an improvement of 0.5%. Retail sales remained positive for the third straight month.
Also, consumer confidence index skyrocketed in May to 134.1, its highest level since November 2018. More importantly, the Expectations Index, which is a measure of the consumers’ short-term (for next six months) outlook for income, business and labor market conditions, surged to 106.6 from 102.7 in April. Strong consumer confidence data indicates that consumer spending is likely to witness robust growth in the coming months.
Increased Use of Cards and Other Payment Modes
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 reach more than $138.7 billion in revenues by 2022.
This increase in online and ecommerce sales should drive modes of payments other than cash. Nevertheless, new-age payment methods are not confined to online and ecommerce sales. Owing to the ease and flexibility that these modern payments offer, shoppers are also using them to make payments while shopping in brick and mortar stores.
Among these payment modes, credit cards hold the prime position. Per Statista survey, in 2018, nearly 62% of online transactions were made by credit and other cards of which credit card was more favored. One of the factors favoring credit cards, is earning rewards upon its usage. However, the speed, ease and flexibility offered by electronic payment modes cannot be overlooked. Also, a mobile payment trend is being witnessed among the younger generation.
Payments Industry Set to Thrive
This clearly points to the fact that a shift to the electronic mode of payments will continue to catch up with demographic changes. Companies in this space have already sensed this and are continuously investing billions of dollars in their systems, procedures and networks.
The payments space is dynamic and requires the use of cutting-edge technology (involving huge expenditure) by companies to provide superior, cost effective, secured service to customers. Opportunities for growth are aplenty in the industry, as cash is still a dominant mode of payment in many markets and geographies. These underpenetrated markets hold growth potential for established players with their robust payment networks.
Artificial intelligence, blockchain technology, biometric and contactless technology will further revolutionize the industry. Thus players are staying updated with the newest technical developments to enable them to fly high.
The industry has risen 18% in a year’s time compared with the Zacks S&P 500 composite's gain of 3.1%.
Since the aforesaid sector is poised to gain from an encouraging reading on the sentiment level, picking stocks from the same will be a smart move. We have, thus, selected four stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Global Payments, Inc. GPN is a leading player in the payments industry, providing payment technology and software solutions, and credit and debit card transaction processing. The Zacks Consensus Estimate for its current-year earnings has risen 0.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 16.6% compared with the industry’s estimated increase of 13%. In a year’s time, the stock has gained 38%. Global Payments carries a Zacks Rank #2.
Mastercard Inc. MA, with a Zacks Rank #2, has witnessed an upward revision in 2019 earnings estimates by 0.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 16.6% compared with the industry’s estimated rally of 13%. In a year’s time, the stock has gained 29%.
FleetCor Technologies, Inc. FLT is a global provider of fuel cards, commercial payment and data solutions, lodging and transportation management services, stored-value solutions, and workforce payment products and services to businesses, retailers, commercial fleets, major oil companies, petroleum marketers and government entities. The Zacks Consensus Estimate for its current-year earnings has risen 2.9% over the past 30 days. Year to date, the stock has gained 46%.
Cardtronics PLC CATM is an operator of ATMs and will likely continue enjoying high demand as people still withdraw cash from ATMs to spend on their purchases. The Zacks Consensus Estimate for its current-year earnings has risen 4% over the past 30 days. Year to date, the stock has gained 12%. The stock sports a Zacks Rank #1.
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