The consumer financial sector is uplifted by disruptive fintech innovations. Fintech and digital banking entities prioritize user-centric design and personalized services to enhance customer satisfaction. Given this, three solid consumer financial stocks, Global Payments Inc. (GPN), Visa Inc. (V), and Regional Management Corp. (RM), could be ideal portfolio candidates this year.
Consumer finance services encompass a broad range of offerings, including banking products such as savings and checking accounts, loans, credit cards, insurance, investment products, and various payment services. In the post-pandemic era, the increased prevalence of internet and mobile technologies has significantly heightened the demand for these services to be available online.
Moreover, consumers now anticipate financial services that are seamless and convenient. This shift in expectations is prompting financial institutions to invest resources in creating user-friendly interfaces, offering personalized services, and accelerating transaction processing.
This increasing trend toward digital payments and online transactions offers substantial growth prospects for consumer finance companies. The global consumer finance market is expected to hit $1.96 trillion by 2029, exhibiting a CAGR of 7.1% spanning from 2023 to 2029.
Additionally, the financial services sector is increasingly leveraging generative AI to construct predictive models for credit risk assessment and fraud detection. Financial institutions are integrating Machine Learning (ML) and Natural Language Processing (NLP) to develop more sophisticated bots.
On top of it, this year, the financial industry is anticipated to undergo significant technological transformations, including the integration of generative AI, the widespread adoption of cloud technology, and the convergence of industry boundaries through trends like embedded finance.
These AI-driven tools enhance customer service by reducing response times and personalizing interactions with customers. The generative AI market in the financial industry is anticipated to exceed $9.48 billion by 2032, exhibiting a robust CAGR of 28.1%.
Keeping these factors in mind, let’s dive deeper into the fundamentals of the featured Consumer Financial Services, beginning with the third choice.
Stock #3: 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 trailing-12-month EBITDA margin of 40.42% is 87.7% higher than the industry average of 21.53%. Likewise, its trailing-12-month levered FCF margin of 24.51% is 41.8% higher than the 17.29% industry average. Furthermore, the stock’s 6.89% trailing-12-month Capex/Sales is 248.5% higher than the 1.98% industry average.
For the fiscal third quarter, which ended September 30, 2023, GPN’s revenues increased 8.3% year-over-year to $2.48 billion. Its adjusted operating income rose 9.6% from the prior-year quarter to $1.02 billion.
The company’s attributable adjusted net income and attributable adjusted EPS grew 5.1% and 10.9% from the year-ago value to $718.63 million and $2.75, respectively. Moreover, during the same period, its total current assets stood at $6.78 billion, up 7.4% compared to $6.31 billion as of December 31, 2022.
Street expects GPN’s revenue and EPS for the fiscal fourth quarter (ended December 2023) to increase 8.2% and 9.4% year-over-year to $2.19 billion and $2.65, respectively. Moreover, the company topped its EPS and revenue estimates in each of the trailing four quarters, which is impressive.
GPN’s revenue and EBIT grew at CAGRs of 8.2% and 18.9% over the past three years, respectively. In addition, its net income and EPS improved at CAGRs of 20.1% and 25.6% in the same period, respectively.
Over the past six months, GPN’s shares have soared 30.9% to close the last trading session at $127.
GPN’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Momentum. In the 47-stock Consumer Financial Services industry, it is ranked #16. Click here to see GPN’s ratings for Value, Stability, Sentiment, and Quality.
Stock #2: Visa Inc. (V)
V is a global payment technology company in the United States and internationally. Its offerings include credit, debit, and prepaid card products; tap to pay, tokenization, and click to pay services; and more.
On December 18, 2023, V acknowledged the importance of embedding payment capabilities for faster transactions by expanding its Fintech Fast Track program. Beyond card issuance, this program now connects members to V’s real-time money movement platform, Visa Direct.
V’s Senior Vice President and Global Head of Innovation and Digital Partnerships, Vanessa Colella, highlighted the crucial role of fintechs as a growth engine for the payments industry. She anticipates that the Fintech Fast Track program will be transformative, creating new growth opportunities within the fintech community and aligning with V’s mission to uplift individuals globally.
In the same month, V officially introduced Visa Provisioning Intelligence (VPI), an AI-powered solution aimed at addressing token fraud at its origin. Offered as an additional service for clients, VPI employs machine learning to assess the potential fraud risk associated with token provisioning requests.
This assists financial institutions in proactively preventing fraud in a targeted manner and facilitates smoother and more secure transactions for V cardholders.
V’s trailing-12-month net income margin of 52.90% is 109.8% higher than the 25.21% industry average. Likewise, its 67.15% trailing-12-month EBIT margin is 220.5% higher than the 20.95% industry average. Furthermore, the stock’s trailing-12-month levered FCF margin of 51.20% is 196.1% higher than the industry average of 17.29%.
V’s net revenues for the fiscal fourth quarter (ended September 30, 2023) increased 10.6% year-over-year to $8.61 billion, while its operating income rose 9.1% from the prior-year quarter to $5.55 billion. The company’s non-GAAP net income grew 17.7% from the year-ago value to $4.82 billion. Furthermore, its non-GAAP EPS came in at $2.33, representing an increase of 20.7% year-over-year.
The consensus EPS estimate of $2.34 for the fiscal first quarter (ended December 2023) reflects a 7.3% increase year-over-year. The consensus revenue estimate of $8.55 billion for the same period indicates a 7.7% year-over-year rise.
Moreover, the company has an excellent surprise history, surpassing the EPS and revenue estimates in each of the trailing four quarters.
V’s revenue and EBIT grew at CAGRs of 14.3% and 15.8% over the past three years, respectively. Over the same period, its net income and EPS improved at CAGRs of 16.7% and 19.2%, respectively.
The stock has surged 11.1% over the past six months to close the last trading session at $260.35.
V’s 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 an A grade for Quality and a B for Momentum and Stability. Within the same industry, it is ranked #11. Click here to see the other ratings of V for Growth, Value, and Sentiment.
Stock #1: Regional Management Corp. (RM)
RM, a diversified consumer finance company, provides various installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. It offers small and large installment loans, retail loans, and other retail products.
RM’s trailing-12-month Return On Total Assets (ROTA) of 1.42% is 26.9% higher than the 1.16% industry average. Furthermore, the stock’s trailing-12-month asset turnover ratio of 0.31x is 48.4% higher than the industry average of 0.21x.
In the fiscal third quarter, which ended on September 30, 2023, RM’s total revenue increased 7.2% year-over-year to $140.88 million. During the same period, the company’s net income amounted to $8.82 million and $0.91 per share, respectively. Meanwhile, its cash balance stood at $7.41 million, up 136.1% compared to $3.14 million as of September 30, 2022.
Analysts predict RM’s revenue for the fiscal fourth quarter (ended December 2023) to increase 7.7% year-over-year to $142.15 million, while its EPS for the same period is expected to come in at $0.49. Furthermore, its EPS is projected to improve by 24% per annum over the next five years.
Additionally, the company surpassed its EPS and revenue estimate in each of the trailing four quarters, which is promising.
RM’s revenue grew at a CAGR of 13.1% over the past three years. Also, its EBIT and total assets have improved at CAGRs of 6% and 19.4% over the same period, respectively.
RM’s shares have gained 16.1% over the past month to close the last trading session at $25.08.
It’s no surprise that RM has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Momentum, Stability, and Quality. Out of 47 stocks in the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have RM’s ratings for Growth and Sentiment. Get all RM ratings here.
What To Do Next?
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V shares were trading at $258.49 per share on Tuesday afternoon, down $1.86 (-0.71%). Year-to-date, V has declined -0.71%, versus a -0.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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