The financial sector is thriving due to the strong demand for financial services from enterprises and individuals. The industry is well-positioned for growth thanks to the adoption of emerging technologies. Technological advancements have helped prioritize user-friendly designs and personalized services, helping enhance customer satisfaction.
Given the robust demand for various financial services, the sector is poised for long-term growth. Amid this backdrop, it could be wise to add consumer financial stocks Global Payments Inc. (GPN), EVERTEC, Inc. (EVTC), and Payoneer Global Inc. (PAYO) to one’s watchlist, given their solid growth prospects.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the financial services industry is well-positioned for growth.
Financial companies provide several services, including credit card processing, easy credit, insurance, tax accounting, wealth management, mortgage financing, and Buy Now Pay Later (BNPL) services. The digitization of these services has revolutionized the financial sector, meeting the needs of individuals, corporations, governments, and investment institutions.
The U.S. boasts one of the world's biggest and most active financial markets. The financial industry benefits from a strong demand for affordable loans, driven by increasing consumer needs for housing and other essentials. Additionally, rising disposable income empowers consumers to use more financial services, contributing to the market's growth. The global financial services industry is expected to grow at a CAGR of 6% by 2032.
With the proliferation of the Internet and the expanding usage of smartphones, the demand for online financial services has grown significantly. Consumers want convenience, pushing institutions to invest in user-friendly interfaces. The global consumer finance market is expected to grow at a CAGR of 7.1% to reach $1.96 trillion by 2029.
The shift to digital financial platforms opens significant growth opportunities for financial companies. Additionally, financial companies are expected to leverage the power of generative AI to enhance fraud detection, generate insights on customer behavior, etc., which will strengthen the sector’s growth further.
Furthermore, the financial services market is projected to grow at a CAGR of 7.4% to reach $33.31 trillion by 2026 and is expected to continue growing at a CAGR of 6.3% to reach $45.15 trillion by 2031.
Considering these conducive trends, let’s analyze the fundamentals of the featured stocks.
Global Payments Inc. (GPN)
GPN provides payment technology and software solutions for card, check, and digital-based payments in the Americas, Europe, and the Asia-Pacific. It operates through three segments: Merchant Solutions, Issuer Solutions, and Consumer Solutions.
GPN’s EBITDA grew at a CAGR of 10.3% over the past three years. Its EPS grew at a CAGR of 25.6% over the past three years. Moreover, its net income grew at a CAGR of 20.1% over the past three years.
In terms of the trailing-12-month EBITDA margin, GPN’s 40.42% is 82.4% higher than the 22.16% industry average. Its 24.51% trailing-12-month levered FCF margin is 39.7% higher than the 17.55% industry average. However, its 0.20x trailing-12-month asset turnover ratio is 1.7% lower than the industry average of 0.21x.
GPN’s adjusted net revenue for the third quarter ended September 30, 2023, increased 8.5% year-over-year to $2.23 billion. Its adjusted operating income rose 9.6% year-over-year to $1.02 billion. Its adjusted net income and EPS attributable to GPN rose 5.1% and 11% over the prior year’s quarter to $718.63 million and $2.75, respectively.
Analysts expect GPN’s revenue for the quarter ending December 31, 2023, to increase 8.1% year-over-year to $2.19 billion. Its EPS for the same quarter is expected to increase 9.3% year-over-year to $2.64. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 10.9% to close the last trading session at $133.27.
GPN’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #17 out of 48 stocks in the Consumer Financial Services industry. It has a C grade for Value, Stability, Sentiment, and Quality. To access GPN’s grades for Growth and Momentum, click here.
EVERTEC, Inc. (EVTC)
EVTC engages in transaction processing business in Latin America and the Caribbean. The company operates through Payment Services - Puerto Rico & Caribbean; Payment Services - Latin America; Merchant Acquiring; and Business Solutions segments.
On November 1, 2023, EVTC completed the acquisition of Sinqia, a leading financial software solutions provider in Brazil. Additionally, EVTC secured $660 million in term loan commitments through an amendment to its credit agreement, including $60 million in additional term loans and $600 million from a syndicate of financial institutions and lenders.
EVTC’s President and CEO Mac Schuessler said, “We are excited about the future of Evertec and Sinqia. Together, we will build a full-service technology company focused on providing the best products and services to our clients throughout the region.”
EVTC’s revenue grew at a CAGR of 9.5% over the past three years. Its EBIT grew at a CAGR of 4.3% over the past three years. Moreover, its levered FCF grew at a CAGR of 14.1% over the past three years.
In terms of the trailing-12-month EBITDA margin, EVTC’s 32.25% is 45.6% higher than the 22.16% industry average. Its 7.94% trailing-12-month Return on Total Assets is 584.8% higher than the 1.16% industry average. Additionally, its 19.70% trailing-12-month Return on Common Equity is 68.5% higher than the 11.69% industry average.
For the third quarter that ended September 30, 2023, EVTC’s revenues increased 18.8% year-over-year to $173.20 million. Its income from operations rose 66.1% over the prior year quarter to $39.56 million. Also, the company’s adjusted net income and adjusted earnings per common share increased 47.2% and 50.9% year-over-year to $52.45 million and $0.80, respectively.
For the quarter that ended December 31, 2023, EVTC’s revenue is expected to increase 17.5% year-over-year to $190.06 million. Its EPS for fiscal 2023 is expected to increase 17.2% year-over-year to $2.84. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 20.8% to close the last trading session at $38.71.
EVTC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Growth, Momentum, and Stability. It is ranked #18 out of 102 stocks in the Financial Services (Enterprise) industry. To see EVTC’s Value, Sentiment, and Quality ratings, click here.
Payoneer Global Inc. (PAYO)
PAYO operates a payment and commerce-enabling platform worldwide. It delivers a suite of services that includes cross-border payments, B2B accounts payable/accounts receivable, multi-currency accounts, physical and virtual Mastercard cards, working capital, merchant, tax, compliance and risk, and others.
On December 20, 2023, PAYO announced new features to boost the growth of small and medium-sized businesses (SMBs). These include the "Add Funds" feature, allowing customers to add money directly from their bank accounts to Payoneer and upgrades to Payoneer Checkout. The aim is to provide SMBs with more control, flexibility, and efficiency in managing their finances and global payments.
On October 25, 2023, PAYO announced a collaboration with Etsy to enhance Etsy Payments for sellers in emerging markets, leveraging PAYO’s global infrastructure for streamlined payouts. The initiative, beginning in Ukraine and Thailand, will extend to India, Japan, Argentina, Chile, and Peru.
Ya Wen, SVP of Americas at PAYO, said, “As a leader in cross-border financial services technology, Payoneer will provide critical infrastructure to support Etsy in expanding its payments offering to sellers in emerging markets and navigating complex payment ecosystems. This collaboration will help create opportunities for the often-underserved sellers in emerging markets, giving them better access to global demand.
PAYO’s revenue grew at a CAGR of 25.5% over the past three years.
In terms of the trailing-12-month gross profit margin, PAYO’s 85.28% is 41.3% higher than the 60.37% industry average. Likewise, its 7.58% trailing-12-month Return on Total Capital is 18.6% higher than the industry average of 6.39%. On the other hand, its 9.38% trailing-12-month EBIT margin is 56.7% lower than the 21.65% industry average.
PAYO’s revenue for the fiscal third quarter that ended September 30, 2023, stood at $208.04 million, up 30.9% year-over-year. The company’s net income came in at $12.83 million, compared to a net loss of $26.45 million in the year-ago quarter. In addition, its adjusted EBITDA increased 356.9% over the prior-year quarter to $58.18 million.
Street expects PAYO’s revenue for the quarter that ended December 31, 2023, to increase 20.9% year-over-year to $221.99 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 183.4% year-over-year to $0.06. Over the past three months, the stock has declined 19.9% to close the last trading session at $4.87.
PAYO’s bleak prospects justify its overall rating of C, which translates to Neutral in our proprietary POWR Ratings system.
It has a C grade for Value, Stability, and Quality. Within the Financial Services (Enterprise) industry, it is ranked #22. In total, we rate PAYO on eight different levels. Beyond what we stated above, we also have given PAYO grades for Growth, Momentum, and Sentiment. Get all the PAYO 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.
GPN shares were trading at $131.65 per share on Thursday morning, down $1.62 (-1.22%). Year-to-date, GPN has gained 3.66%, versus a -0.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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