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3 Payment Processing Stocks Poised for Q3 Earnings Beat

Zacks

Payment processors have performed quite well so far this year, thanks to an improving U.S economy, low unemployment, a drop in inflation, and healthy consumer confidence that resulted in increased business volumes.

The revolutionary shift from cash payments to online transactions continues to further propel transaction volume growth.

Card Sales Aided by Economic Growth

The economic growth in the United States has led to higher disposable income, resulting in greater customer spending. In the environment where plastic is preferred over paper and borrowings are chosen over savings, economic growth has resulted in a steep rise in the companies’ card sales volume. This is expected to drive the industry’s top line in third-quarter 2017.


Mergers and Acquisitions to Aid Revenue Growth

The players in the space are gearing up for growth through mergers and acquisitions, alliances, deals and pacts. Recent acquisition of NuData Security by Mastercard Inc MA, Heartland Payments by Global Payments, Inc. GPN, investment by Visa Inc V in Swedish company Klarna and many more indicate rise in consolidation activity in the space, which is expected to aid top-line growth.

Forex Impact on Earnings

Players in this industry have vast international operations which have grown over the years through tuck-in acquisitions, strategic alliances and joint ventures. This exposes them to foreign exchange volatility. Moreover, the dollar index fell 2.66% in the third quarter, which will weigh on the margins.

Increased Expenses

We also expect to see an increase in operating expenses led by higher marketing spend by players in order to woo more customers in a competitive industry. Also increased investments in digitalization and geographic expansion will hurt the bottom line, before bringing results.

Industry Rank and Price Performance

The industry’s superior performance is evident from its rally of 28.7% in the last year compared with 18.5% gain registered by the S&P 500. Therefore, investing in stocks in this space would generate smart returns over time.

Stocks to Consider

We zeroed in on three stocks that are poised for an earnings beat this quarter. Our proven model shows that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 (Hold), when combined with a positive Earnings ESP, has the potential to beat earnings expectations.

Total System Services Inc TSS is one of the world's largest companies for outsourced payment services. Its earnings have surpassed expectations in each of the last four quarters with an average beat of 3.5%. It is set to release third-quarter results on Oct 24, after the market closes.

The company’s Zacks Rank #2 and Earnings ESP of +0.21% strengthens its potential for a third-quarter beat. The expected long-term earnings growth rate for the company is 12%, in line with the industry average. Shares of Total System have gained 44.5%, handily outperforming the industry’s rally in the last year.

Visa operates a retail electronic payments network worldwide. Its earnings have surpassed expectations in each of the last four quarters with an average beat of 8.4%. It is set to release third-quarter results on Oct 25, before the market opens.

The company’s Zacks Rank #2 and Earnings ESP of +2.76% increase its potential for a third-quarter beat. The expected long-term earnings growth rate for the company is 16.3%, better than the industry average. Shares of Visa have gained 30.8%, outperforming the industry’s rally in the last year.

Vantiv, Inc. VNTV is a leader in global money transfer that provides fast, reliable and convenient ways to transfer money. It has delivered positive surprises in each of the last four quarters with an average beat of 3.6%. It is set to release third-quarter results on Oct 26, before the market opens.

The company’s Zacks Rank #3 and Earnings ESP of +0.48% bolsters its potential for a third-quarter beat. The expected long-term earnings growth rate for the company is 14.5%, more than the industry average. Although, shares of Vantiv have gained 27.6%, marginally underperforming the industry’s increase in the last year, its strong fundamentals are expected to keep the rally alive.

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