The financial services industry is being boosted by the adoption of efficient as well as advanced technologies. Moreover, increasing financial transactions, the rising demand for insurance and loans, and the increasing disposable incomes of consumers enabling greater investments are expected to drive growth. The global financial services industry is expected to grow at a CAGR of around 6% in the forecast period of 2023-2028.
The prominent financial service company PayPal Holdings, Inc. (PYPL) has registered weak momentum over the past months. The stock has lost 57.1% over the past year and 13.4% over the past three months, closing its last trading session at $80.75. PYPL has a 24-monthly beta of 1.69.
In addition, on November 23, it was reported that Polish regulator UOKiK started proceedings against PYPL over possible prohibited contractual provisions. The regulator said it has doubts regarding the payments company’s right to impose contractual penalties, such as blocking access to accounts, financial sanctions, or terminating contracts, among others. The possible fine could amount to 10% of the company’s revenue.
PYPL’s third quarter result reflects its grim financial situation. The company’s total operating expenses rose 11.5% year-over-year to $5.73 billion. Its non-GAAP net income declined 4.9% year-over-year to $1.25 billion, while its non-GAAP net income per share decreased 2.7% from its prior-year quarter. On top of it, analysts expect PYPL’s EPS to decline 11.4% for the current fiscal year ending December 2022.
Given this backdrop, investors could capitalize on the industry’s growth prospects by considering fundamentally strong financial services stocks Visa Inc. (V) and MainStreet Bancshares, Inc. (MNSB) instead of PYPL.
Visa Inc. (V)
V operates as a payments technology company worldwide. The company operates VisaNet, a transaction processing network that enables the authorization, clearing, and settlement of payment transactions. It facilitates digital payments among consumers, merchants, financial institutions, strategic partners, businesses, and government entities.
On November 14, V and Royal Bank of Canada announced their new collaboration to provide eligible RBC personal credit cardholders with the convenient option of converting a qualifying purchase into smaller, equal payments made over a defined period when shopping at participating merchants across Canada – both in-store and online.
As consumer demand for more convenient and affordable financing solutions grows, companies might benefit from the collaboration.
On October 19, V partnered with Thunes to launch a cross-border send-to-wallet capability for small businesses and consumers to move money internationally to 78 digital wallet providers, reaching 1.5 billion digital wallets across 44 countries and territories. This collaboration is expected to extend the company’s market reach and boost its profitability.
V’s net revenues increased 19% year-over-year to $7.79 billion in the fiscal 2022 fourth quarter ended September 30, 2022. Its operating income grew 17.9% from the prior-year period to $5.09 billion. The company’s non-GAAP net income rose 16% from its prior-year quarter to $4.09 billion, while its earnings per share came in at $1.93, up 19% year-over-year.
The consensus EPS estimate of $2.00 for the fiscal first quarter ending December 2022 represents a 10.7% improvement year-over-year. The consensus revenue estimate of $7.68 billion for the same quarter represents an 8.8% increase from last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 11.2% over the past month to close the last trading session at $211.73.
V’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
V has a grade of A for Quality and B for Stability. It is ranked #7 out of 48 stocks in the Consumer Financial Services industry.
To see V’s additional POWR ratings for Momentum, Value, Sentiment, and Growth, click here.
MainStreet Bancshares, Inc. (MNSB)
MNSB operates as the bank holding company for MainStreet Bank that provides various banking products and services for individuals, small to medium-sized businesses, and professional service organizations.
On November 1, MNSB declared a cash dividend of $0.10 per common share for the third quarter, payable on November 10, 2022. Its annual dividend of $0.40 yields 1.38% on current prices. It has a four-year average yield of 0.09.
In terms of forward non-GAAP P/E, MNSB is currently trading at 9.35x, which is 10% lower than the industry average of 10.391x. Its trailing-12-month Price/Cash multiple of 3.58 is 51.7% lower than the industry average of 7.43.
In the fiscal third quarter ended September 30, 2022, MNSB’s total interest income rose 38.8% year-over-year to $21.91 million, while its net interest income increased 37.1% year-over-year to $18.10 million. The company’s net income and net income per share came in at $7.74 million and $0.97, up 61.9% and 73.2% from the prior-year quarter.
Street EPS estimate for the current fiscal year ending December 2022 of $3.10 reflects a rise of 17% year-over-year. Likewise, Street revenue estimate for the current year of $70.61 million indicates an improvement of 31.9% from the last year. Additionally, MNSB has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 19.3% to close its last trading session at $29.
This promising prospect is reflected in MNSB’s POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
MNSB has an A grade for Stability and Sentiment and a B for Growth and Momentum. It is ranked first in the same industry.
Click here to see the additional POWR Ratings for MNSB for Value and Quality.
V shares were trading at $211.73 per share on Thursday afternoon, up $1.40 (+0.67%). Year-to-date, V has declined -1.33%, versus a -14.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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