The COVID-19 pandemic discouraged contact, accelerating the switch to cashless transactions and making the payment experience more standardized. Consumers nowadays are more inclined toward payment processes working as fast and efficiently as possible.
The digitalization of payment services and rising e-commerce businesses have driven the outsized growth of payment companies over the past few years. The global digital payments market is estimated to reach $19.89 trillion by 2026, growing at a CAGR of 24.4%.
In addition, the usage of smartphones and high-speed internet has proven to be a blessing for the payments industry. Reward programs, loyalty points, and a more customized consumer experience are other factors boosting the payment industry’s growth.
Given this backdrop, it could be wise to add fundamentally strong payment stock Visa Inc. (V) to your portfolio. Moreover, with PayPal Holdings, Inc.’s (PYPL) prospects being mixed, it could be wise to wait for a better entry point in the stock if you are not already holding it. However, Paysafe Limited (PSFE) could be best avoided due to its weak fundamentals.
Stock to Buy:
Visa Inc. (V)
V operates as a payments technology company worldwide. The company facilitates digital payments among consumers, merchants, financial institutions, businesses, and other entities. It operates VisaNet, a transaction processing network. It provides services under Visa, Visa Electron, Interlink, VPAY, and PLUS brands.
On October 7, 2022, West Realm Shires Services Inc. and FTX Trading Limited, the companies behind FTX US and FTX.COM, respectively (collectively referred to as "FTX"), and V, announced a long-term global partnership. As a part of the alliance, FTX will begin by offering FTX-branded V debit cards to FTX customers internationally.
V’s Head of Crypto, Cuy Sheffield, believes that digital currencies will have a lasting impact on the future of financial services and money movement and is thus excited to partner with a leading crypto exchange, FTX to bring more flexibility and ease of use to the way people use their crypto.
For the fiscal fourth quarter ended September 30, 2022, V’s net revenues increased 19% year-over-year to $7.78 billion. Its non-GAAP net income increased 16% year-over-year to $4.09 billion. Its non-GAAP adjusted EPS came in at $1.93, representing a 19% increase from the prior-year quarter.
V’s EPS and revenue for the quarter ending December 31, 2022, are expected to increase 11% and 9.9% year-over-year to $2.01 and $7.76 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 5.7% to close the last trading session at $194.38.
V’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Consumer Financial Services industry, it is ranked #8 out of 49 stocks. The company has a B grade for Stability, Sentiment, and Quality.
Click here to see the additional POWR ratings of V for Growth, Value, and Momentum.
Stock to Hold:
PayPal Holdings, Inc. (PYPL)
PYPL operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It provides payment solutions under the brands PayPal, PayPal Credit, Braintree, and Venmo, among others.
PYPL’s total liabilities increased 7.3% to $58.04 billion for the second quarter ended June 30, 2022, compared to $54.08 billion for the fiscal year ended December 31, 2021. Its total payment volume (TPV) increased 9% year-over-year to $339.79 billion. Also, its net revenues increased 9% year-over-year to $6.81 billion.
The company’s non-GAAP operating margin came in at 19.1%, compared to 27% in the year-ago period. Its non-GAAP net income fell 20.8% year-over-year to $1.08 billion. In addition, its non-GAAP adjusted EPS declined 19.1% year-over-year to $0.93.
Analysts expect PYPL’s EPS for the quarter ended September 30, 2022, to decline 13.5% year-over-year to $0.96. Its revenue for the quarter ending December 31, 2022, is expected to increase 11.8% year-over-year to $7.74 billion. Over the past year, the stock has declined 63.8% to close the last trading session at $89.24.
PYPL’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
The stock is ranked #39 in the same industry. It has a C grade for Growth, Value, Stability, and Quality.
We have also given PYPL grades for Momentum and Sentiment. Get all PYPL ratings here.
Stock to Avoid:
Paysafe Limited (PSFE)
Based in London, the United Kingdom, PSFE provides digital commerce solutions to online businesses, small and medium sized business merchants, and consumers worldwide. The company operates in two segments, US Acquiring and Digital Commerce.
For the fiscal second quarter ended June 30, 2022, PSFE’s revenue fell 1% year-over-year to $378.91 million. Its net loss attributable to the company came in at $631.52 million, compared to a net income attributable of $6.78 million in the year-ago period. In addition, its adjusted EBITDA declined 13.3% year-over-year to $102.95 million.
Analysts expect PSFE’s EPS for the quarter ending December 31, 2022, to decline 92.3% year-over-year to $0.01. Its revenue for fiscal 2022 is expected to decline 0.7% year-over-year to $1.48 billion. Over the past year, the stock has fallen 80.6% to close the last trading session at $1.46.
PSFE’s grim outlook is reflected in its POWR Ratings. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. It is ranked #45 in the Consumer Financial Services industry. In addition, it has a D grade for Momentum and Quality.
To see the other ratings of PSFE for Growth, Value, Stability, and Sentiment, click here.
V shares were trading at $202.36 per share on Wednesday afternoon, up $7.98 (+4.11%). Year-to-date, V has declined -6.13%, versus a -18.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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