The financial services sector is poised for substantial growth in the foreseeable future, thanks to its demonstrated ability to navigate uncertainty, embrace digital omnichannel strategies, and incorporate cutting-edge technologies.
To capitalize on this promising industry outlook, it could be wise to add fundamentally sound financial stocks- American Express Company (AXP), FirstCash Holdings, Inc. (FCFS), and EZCORP, Inc. (EZPW) to your portfolio for potential gains. Let’s understand this in detail.
While the Federal Reserve kept interest rates unchanged in November, Fed Chair Jerome Powell has insisted that rate cuts are not in discussion right now. This could continue to support the financial services sector as companies in this space conventionally thrive in a high-interest-rate environment.
Moreover, financial services companies have shifted their focus in recent years toward digital omnichannel strategies. Now, they are exploring emerging technologies such as meta-space and Web 3.0, poised to revolutionize the customer experience.
Digitalization, with a strong focus on cloud technologies, is becoming one of the prominent trends in the financial services industry. It promises contactless, highly efficient customer service and necessitates reallocating funds. This transformation would enhance industry competitiveness, adaptability, and customer-centricity.
Artificial Intelligence (AI) tools could also reshape the sector by optimizing risk management, fraud detection, compliance, and customer service functions. The financial services market is expected to grow to $37.48 trillion in 2027 at a CAGR of 7.5%.
Considering these conducive trends, let’s take a look at the fundamentals of the three Consumer Financial Services stocks, starting with number 3.
Stock #3: American Express Company (AXP)
AXP offers an array of charge and credit payment card products alongside an extensive suite of travel-related services. It conducts its operations across three segments: Global Consumer Services Group; Global Commercial Services; and Global Merchant and Network Services.
On October 19, AXP and Hilton Worldwide Holdings Inc. (HLT) introduced new benefits for the Hilton Honors American Express Surpass® and Hilton Honors American Express Aspire Cards for a better customer travel experience. Such rewards should boost the company’s customer engagement.
In terms of the trailing-12-month Return on Total Assets, AXP’s 3.20% is 179.4% higher than the 11.20% industry average. Likewise, its 30.80% trailing-12-month Return on Common Equity is 174.9% higher than the industry average of 11.20%.
For the third quarter that ended September 30, 2023, AXP’s total non-interest revenues increased 8.8% year-over-year to $11.94 billion. Its total interest income grew 55.3% from the year-ago value to $5.24 billion.
Also, the company’s net income rose 30.4% from the prior year’s period to $2.45 billion. Its earnings per common share came in at $3.30, up 33.6% from the prior-year period.
The consensus revenue estimate of $15.97 billion for the fiscal fourth quarter ending December 2023 reflects a 12.6% year-over-year rise. Likewise, the consensus EPS estimate of $2.65 for the ongoing quarter indicates a 28.2% year-over-year improvement.
AXP’s shares have gained 2.2% over the past five days and marginally intraday to close the last trading session at $146.45.
AXP’s fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
AXP has a B grade for Sentiment and Quality. It is ranked #9 out of 48 stocks in the Consumer Financial Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see AXP’s ratings for Growth, Value, Momentum, and Stability here.
Stock #2: FirstCash Holdings, Inc. (FCFS)
FCFS operates retail pawn stores in the United States, Mexico, and the rest of Latin America. Its pawn stores lend money on the collateral of pledged personal property and retails merchandise acquired through collateral forfeitures on forfeited pawn loans and over-the-counter merchandise purchases directly from customers.
The company repurchased 95,000 shares of common stock during the third quarter for $9 million and has $200 million available under the share repurchase program authorized in July 2023. In October, the company declared a $0.35 per share dividend, payable to shareholders on November 30, 2023. Its annual dividend of $1.40 yields 1.30% on prevailing prices.
FCFS’ 28.56% trailing-12-month EBITDA margin is 37.2% higher than the 20.82% industry average. Likewise, its 16.87% trailing-12-month levered FCF margin is 14.6% higher than the 14.72% industry average. Furthermore, the stock’s 0.76x trailing-12-month asset turnover ratio is 259.3% higher than the 0.21x industry average.
For the fiscal third quarter that ended September 30, 2023, FCFS’ non-GAAP revenue increased 15.8% year-over-year to $786.30 million. Its adjusted EBITDA rose 22.2% over the prior-year quarter to $132.99 million.
The company’s non-GAAP net income increased 15.9% year-over-year to $70.78 million. Also, its non-GAAP EPS came in at $1.56, representing an increase of 20% year-over-year.
Street expects FCFS’ EPS and revenue for the quarter ending December 2023 to increase 10.9% and 13.7% year-over-year to $1.83 and $851.91 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 23.6% year-to-date and 10.8% over the past year to close the last trading session at $107.40.
FCFS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Sentiment. It is ranked #6 in the same industry. Click here to see the other ratings of FCFS for Growth, Value, Momentum, Stability, and Quality.
Stock #1: EZCORP, Inc. (EZPW)
EZPW provides pawn services in the United States and Latin America. The company operates through three segments: U.S. Pawn; Latin America Pawn; and Other Investments.
In terms of the trailing-12-month Return on Total Assets, EZPW’s 2.44% is 113.1% higher than the 1.14% industry average. Its 4.11% trailing-12-month CAPEX/Sales is 106.3% higher than the industry average of 1.99%. Also, its 0.73x trailing-12-month asset turnover ratio is 243.6% higher than the 0.21x industry average.
For the fiscal third quarter that ended June 30, 2023, EZPW’s adjusted total revenue increased 15.6% year-over-year to $249.50 million, while its adjusted gross profit increased 12.4% from the previous year's value to $145.50 million.
Additionally, the company’s adjusted net income came in at $14.60 million, showing a 32.7% increment from the prior-year period, while its adjusted EPS stood at $0.20, up 25% year-over-year.
For the first quarter of fiscal 2024 (ending December 2023), EZPW’s revenue and EPS are expected to grow 11.6% and 10.7% year-over-year to reach $295.08 million and $0.31, respectively. The company’s revenue and EPS topped analyst estimates in each of the four trailing quarters.
The stock has gained 1.6% over the past five days to close the last trading session at $8.14.
It’s no surprise that EZPW has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth. Within the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have EZPW’s ratings for Value, Momentum, Stability, Sentiment, and Quality. Get all EZPW ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AXP shares were trading at $150.52 per share on Thursday afternoon, up $4.07 (+2.78%). Year-to-date, AXP has gained 3.38%, versus a 13.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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