The consumer financial services sector is well-positioned for significant growth due to the ease of accessibility of digital financial services, rising consumer spending, and growing demand for financial services. Additionally, financial companies benefit from expanding profit margins in a high-interest-rate environment.
Amid this backdrop, it could be wise to buy fundamentally strong consumer financial stocks: Global Payments Inc. (GPN), Mastercard Incorporated (MA), and Qifu Technology, Inc. (QFIN).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the financial services industry is well-positioned for growth.
Financial institutions offer financial services like credit card processing, easy credit, insurance, tax accounting, wealth management, BNPL, etc. The digitization of these financial services has transformed the consumer financial industry, deriving demand from individuals, corporations, governments, and investment institutions.
During the pandemic, the financial services industry swiftly adopted cloud, mobile, and blockchain technologies, resulting in real-time transactions and improved customer experiences. This shift also paved the way for AI and Machine Learning (ML) to rapidly transform various areas, including task automation, fraud detection, and customer support, among other services.
While a potential rate hike may pressure other sectors, the financial industry is poised to benefit as higher interest rates can boost profit margins. 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 fundamental aspects of the three Consumer Financial Services picks, 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.
In terms of the trailing-12-month EBITDA margin, GPN’s 40.42% is 94.1% higher than the 20.82% industry average. Its 24.51% trailing-12-month levered FCF margin is 66.5% higher than the 14.72% industry average. Likewise, its 6.89% trailing-12-month Capex/Sales is 246.4% higher than the industry average of 1.99%.
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 8.4% year-over-year to $2.19 billion. Its EPS for the quarter ending March 31, 2024, is expected to increase 10.2% year-over-year to $2.65. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 9.8% year-to-date to close the last trading session at $109.02.
GPN’s positive outlook is reflected in its POWR Ratings. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #15 out of 48 stocks in the Consumer Financial Services industry. To access GPN’s grades for Growth, Value, Momentum, Stability, Sentiment, and Quality, click here.
Stock #2: Mastercard Incorporated (MA)
MA is a technology company that provides transaction processing and other payment-related products and services in the United States and internationally. It facilitates the processing of payment transactions, including authorization, clearing, and settlement, as well as delivers other payment-related products and services.
On October 17, 2023, MA announced partnerships with Worldpay, Zip, and others to scale open banking-powered solutions for more payment choices, consumer lending empowerment, and modernized account-based payments.
In addition, MA is using AI for transaction security, teaming up with J.P. Morgan Payments and Worldpay to simplify bill payments, and improving lending with Zip. They're also expanding open banking worldwide.
In terms of the trailing-12-month gross profit margin, MA’s 100% is 66.2% higher than the 60.16% industry average. Its 27.55% trailing-12-month Return on Total Assets is significantly higher than the 1.14% industry average. Additionally, its 172.49% trailing-12-month Return on Common Equity is considerably higher than the 11.20% industry average.
For the third quarter that ended September 30, 2023, MA’s net revenue increased 13.5% year-over-year to $6.53 billion. Its operating income rose 23.5% over the prior year quarter to $3.84 billion. Also, the company’s adjusted net income and adjusted EPS increased 23.4% and 26.5% year-over-year to $3.20 billion and $3.39, respectively.
For the quarter ending December 31, 2023, MA’s EPS and revenue are expected to increase 16.3% and 11.4% year-over-year to $3.08 and $6.48 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 13.4% to close the last trading session at $377.82.
MA’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 Stability, Sentiment, and Quality. It is ranked #4 in the same industry. To see MA’s Growth, Value, and Momentum ratings, click here.
Stock #1: Qifu Technology, Inc. (QFIN)
Headquartered in Shanghai, the People's Republic of China, QFIN and its subsidiaries operate a credit-tech platform under the 360 Jietiao brand in the People's Republic of China. It provides credit-driven services and platform services.
In terms of the trailing-12-month EBIT margin, QFIN’s 50.97% is 135.4% higher than the 21.65% industry average. Likewise, its 51.46% trailing-12-month EBITDA margin is 147.1% higher than the industry average of 20.82%. Additionally, its 8.98% trailing-12-month Return on Total Assets is 684.5% higher than the industry average of 1.14%.
QFIN’s total net revenue for the fiscal second quarter that ended June 30, 2023, stood at RMB3.91 billion ($534.20 million). Its non-GAAP income from operations rose 16.8% year-over-year to RMB1.23 billion ($153.43 million).
The company’s non-GAAP net income attributable to shareholders of QFIN and net income per ADS attributable to ordinary shareholders of QFIN stood at RMB1.15 billion ($157.12 million) and RMB6.95, representing an increase of 12.1% and 8.3% year-over-year, respectively.
Street expects QFIN’s EPS for the fiscal year ending December 31, 2024, to increase 16.3% year-over-year to $4.37. Its revenue for the fiscal year ending December 31, 2024, is expected to increase 13.2% year-over-year to $2.47 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 32.3% to close the last trading session at $14.67.
It’s no surprise that QFIN has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. Within the Consumer Financial Services industry, it is ranked #2. In total, we rate QFIN on eight different levels. Beyond what we stated above, we also have given QFIN grades for Growth, Momentum, and Stability. Get all the QFIN 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.
MA shares were trading at $382.14 per share on Thursday morning, up $4.32 (+1.14%). Year-to-date, MA has gained 10.57%, versus a 13.45% 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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