The Zacks - Payments industry which is to a large extent, driven by consumer spending is set for strong growth based on favorable employment outlook and a steady economic expansion. This is because the pandemic-induced economy is slowly bouncing back.
Consumer confidence has improved gradually with more people getting vaccinated and business prospects thriving with many states easing restrictions.
Moreover, the new round of stimulus boosted consumer sentiment to spend more freely. At the same time, it shows the growing faith in the country’s economy.
Per the University of Michigan, the consumer sentiment index stood at 82.9, higher than the May 2020 reading of 72.3. However, the index plunged from April's tally of 88.3. Economists had projected a reading of 82.8 though for the last month.
Also, experts’ forecasts for the current economic condition and their expectations improved. Customer spending too looks stable going forward although personal finance remains a concern. Persistent inflation is an added woe. Despite such headwinds, consumer spending is expected to rise on the back of pent-up demand and saving balances. Consumers expect a booming economy over the next year as a result of last year’s shutdown.
The consumer sentiment index, historically, is a mirror of consumer spending for the next three to six months and the growing consumer confidence will prompt buyers to loosen the purse strings. A stable consumer spending is directly proportional to revenue growth for the companies in the payments space.
Drivers of the Payments Industry
The payments space, which mostly consists of players offering various services in digital, electronic and card payments, saw increased business volumes. This is owing to fast adoption of easy, convenient, flexible payment options by consumers. More and more people have opted for contactless payments ever since the pandemic has hit.
Even though retail sales dipped 0.7% in May, Americans are spending more on travel, entertainment and vacations. Even after the massive $1.9-trillion coronavirus relief package fades, consumers are spending a lot more now than they did a year ago. As more people are resuming work, we believe, the payment stocks will be the beneficiaries.
The shift from cash to digital in the payments industry is well underway and will gain a further momentum with greater number of players adopting latest technologies.
Additionally, a huge population is consistently purchasing retail goods online, mainly owing to the continued pandemic. Revenues from retail e-commerce in the United States logged $431.6 billion last year. Per the Statista Digital Market Outlook, the same is projected to soar to $563.4 billion by 2025.
Other factors acting as tailwinds include lending support to cryptocurrencies like Bitcoin, which is making headlines these days. For instance, both Visa Inc. V and Mastercard Inc. MA announced plans to facilitate cryptocurrency-related transactions on their networks.
Stocks Under Watch
Since the aforesaid space is poised to gain going forward on the back of several tailwinds, picking stocks from the same will be a smart move. These stocks witnessed upward estimate revisions in the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Visa operates retail electronic payments network worldwide. It continues to benefit from the Visa Europe acquisition, increasing business volumes, investment in digital technology and a solid balance sheet. The Zacks Consensus Estimate for its current-year earnings has risen 0.2% over the past 30 days. In the past year, the stock has gained 20.4% compared with the industry’s growth of 11.3%. The company’s expected earnings growth rate for the current year is 10.91%. It has a Zacks Rank #3 (Hold) at present.
Global Payments, Inc. GPN is a leading player in the payments industry, providing payment technology and software solutions plus credit and debit card transaction processing. The company’s investments for future growth, cost-curbing measures, a number of acquisitions and successful refinancing of its credit facilities bode well for the long haul. The Zacks Consensus Estimate for its current-year earnings has risen 0.1% over the past 30 days. Its expected earnings growth rate for the current year is 25.3%. In the past year, this currently Zacks Rank #3 company has gained 7.4%.
Alliance Data Systems Corporation ADS is a private label credit card processing firm for mid-market specialty retail stores in the United States. Its high-ROI Card Service segment, solid inorganic background, balance sheet strength to gain financial flexibility and an effective capital deployment policy pave the path for progress. Over the past 30 days, the company has witnessed its 2021 earnings estimate move 4.3% north. The company’s expected earnings growth rate for the current year is 69%. In the past year, this presently Zacks Rank #2 (Buy) company has skyrocketed 124.8%.
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