For Immediate Release
Chicago, IL – June 23, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Worldline SA WWLNF, CompoSecure, Inc. CMPO and DLocal Ltd. DLO.
Here are highlights from Thursday’s Analyst Blog:
Should You Buy Financial Services Stocks?
The Zacks-classified Financial Transaction Services industry comprises a motley crowd, including companies providing simple card and payment processing services, or ATM services or those facilitating remittances, as well as those offering investment solutions to financial advisors. Therefore, it is somewhat difficult to estimate the growth outlook for this vast group.
Additionally, market researchers have their own systems of classification, which leads to significant deviation in estimates, even between them.
Therefore, rather than attempting to estimate the growth prospects of this industry, it would make more sense to ascertain its driving factors, and then determine the strength or weaknesses of these factors.
Growth in digital transaction volumes: Since financial transactions are recorded only when they are made through a third party, such as a bank or payment processor that verifies the parties to the transaction and facilitates the process, it is at this point that services become relevant. Therefore, for financial service providers, transaction volumes are of the greatest significance.
Additionally, digital transaction volumes are even more relevant because for the most part, in such cases, a financial service provider facilitates the process. It is safe to say then that the growing digitization of transactions is a big positive for the industry.
According to Reportlinker estimates, the global digital payments market will grow from $96.19 billion in 2022 to $197.87 billion in 2027, a CAGR of 15.5%. Growth in 2023 is also expected to be 15.5%. Statista estimates that the digital payments market, which will be worth $9.46 trillion worldwide in 2023 will grow at a CAGR of 11.8% to reach $14.78 trillion by 2027.
While digital transactions were increasingly being adopted prior to the pandemic, the health hazard clearly sped up the process and spurred a few years of tremendous innovation wherein things like online payments and contactless payments of various kinds became the norm. Post-pandemic, these payment methods have become habitual, even when the purchases are sometimes picked up at the store or at the curbside. Therefore, this is a positive driver of business for this group and likely to remain so in 2023.
Resurgence of online commerce: Immediately after the pandemic, people wanted to get out of the house. They wanted to “touch and feel” what they were buying, which is an important part of any purchase process. But after a few months, the convenience of online shopping became a bigger factor. So, while store sales are still an important factor, online shopping is coming back this year, as data from the Commerce Department clearly shows.
Moreover, even when people are buying in-store, they are increasingly using mobile payments and contactless payments. The change in consumer habits is likely a permanent phenomenon, one that serves the companies providing related services well.
Resilient consumer spending: Despite the fears and concerns about an impending recession, jobs have not taken much of a hit. This is in contrast to earlier recessions when job growth screeched to a halt and job cuts increased. Things are very different this time. There is a shortage of key skills in the market because technological developments have rendered many processes obsolete. It doesn’t make sense for management of most companies to offload their entire workforce, especially when many of these workers are probably loyal with multiple years of experience in the company.
Additionally, since there is a lack of people with adequate skills in the marketplace, it isn’t as if these workers can be replaced easily. Therefore, most companies are not downsizing yet, even if wage increases have become harder. Additionally, because of the stable job market, consumers continue to buy even at higher prices.
Rebounding cross border travel: By all estimates, cross border travel is finally coming back, both between the U.S. and China and between the U.S. and Europe. When people travel outside the country, there is great comfort in using payment systems facilitating seamless transactions rather than dealing in foreign currency notes. For this reason, foreign travel is a great driver of financial transactions.
Considering the strong growth outlook, it’s better to ignore the slight moderation in estimates as the market braces for a soft landing/recession. There are many stocks worth buying in this industry. I’ve picked three:
Worldline SA is a global payment and transactional services provider catering to financial institutions, merchants, corporations and government agencies. The company operates through three segments: Merchant Services, Financial Services, and Mobility & e-Transactional Services. Worldline offers a range of solutions including commercial acquiring, terminal services, payment acceptance, digital retail, issuing and acquiring processing, digital banking, e-ticketing and trusted digitization services. Headquartered in Puteaux, France, Worldline serves customers across Northern Europe, Central and Eastern Europe, Southern Europe, and other international markets.
Zacks #1 (Strong Buy) ranked Worldline is expected to grow its multi-billion-dollar revenue 19.9% this year and 33.7% in the next. Obviously, this means earnings will also grow strongly (33.3% this year and 45.1% in 2024). Its 2023 estimate has increased 11 cents in the last 60 days while the 2024 estimate increased 86 cents.
Somerset, NJ-based CompoSecure is a manufacturer and designer of financial transaction cards, specializing in metal, plastic, composite and proprietary card materials. The company offers various metal form factors, including embedded, metal veneer lite, metal veneer, and full metal products. Additionally, CompoSecure provides Arculus Cold Storage Wallet, a three-factor authentication solution for digital assets such as Bitcoin, Ethereum and non-fungible tokens. The company serves financial institutions, plastic card manufacturers, government agencies, system integrators, and security specialists.
CompoSecure’s revenue and earnings are both expected to grow around 9% this year. For 2024, analysts currently expect revenue growth of around 15% and earnings growth of around 23%. The 2023 estimate has increased a couple of cents in the last 60 days while the 2024 estimate increased a penny.
The shares carry a Zacks Rank #2 (Buy).
Montevideo, Uruguay-based DLocal operates a payment processing platform with worldwide operation. Its payments platform enables merchants to pay and receive payments online. The company serves commerce, streaming, ride-hailing, financial services, advertising, software as a service, travel, e-learning, on-demand delivery, gaming and crypto industries.
DLocal is expected to grow strong double-digits both this year and the next. Revenue and earnings growth in 2023 is expected to be a respective 52.3% and 54.1%. In 2024, these are expected to grow another 38.9% and 40.4%, respectively.
The shares carry a Zacks Rank #2.
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