Zacks Investment Research | Nov 14, 2019 08:54PM ET
The payment industry performed impressively in the first nine months of 2019 despite a slowdown in the overall global economy, induced primarily by U.S-China trade war and to some extent, Brexit.
Although the sluggish global economy tempered the spending pattern of consumers, payments companies are gaining traction from the increasing frequency of online payments leading to use of debit, credit cards, mobile, online and money transfers via wearables. These new-age payment techniques entail the use of products and services of multiple payment companies engaged at different nodal points across the whole payment mechanism, aiding the involved players in the process.
Notwithstanding the signs of recession looming large on the economy, the upcoming holiday season is expected to be merrier. Thus, holiday spending should aid the earnings of the payments industry players.
Holiday Phase to Cheer Shoppers This Year
Oliver Wyman, recently in its survey stated that “US consumers are not letting a possible recession dampen their holiday spirit and plan to spend an average of $375 during Black Friday and Cyber Monday. This is a slight drop from $390 in 2018”.
The statement also included that 59% of the shoppers are planning to make purchases exclusively online during Black Friday and Cyber Monday. Online shopping continues to draw customers, evident from online retailers, such as Amazon (NASDAQ:AMZN) offering one-free shipping this holiday season. The company’s research data confirms that most buyers want to stay home and place orders from their comfort zones, thereby perking up online sales.
Going by another recent report by the National Retail Federation (NRF), holiday retail sales during November and December are estimated to beat the 2018 mark and increase between 3.8% and 4.2%. Per the forecast, retail sales in these two months are expected to rise between $727.9 billion and $730.7 billion.
NRF President and CEO Matthew Shay stated that the Sino-US trade tussle and a decelerating economy may restrain sales but the U.S. economy is still witnessing growth and courtesy of higher consumer spending, the bothersome issues can be sidelined.
Also, NRF projects online and other non-store sales to increase between 11% and 14% from $146.5 billion in 2018 to $162.6-$166.9 billion range, this time around.
These positive trends bode well for the payments industry , which has gained 40.1% year to date compared with the Zacks S&P composite’s rise of 22.2%.
Solid E-commerce Sales to Drive Alternative Payments
Proliferation of technology in everyday lives led to a boom in online sales also called e-commerce. The Census Bureau of the Department of Commerce in its latest report announced that the estimate of U.S. retail e-commerce sales for the second quarter of 2019 was $146.2 billion, reflecting 4.2% improvement sequentially and 13.3% growth year over year.
E-commerce mostly propels the use of online payment methods. Some of the most common methods for online purchases are PayPal, Amazon Pay, Google (NASDAQ:GOOGL) Pay, American Express (NYSE:AXP) cards, Apple (NASDAQ:AAPL) Pay, Stripe, Square (NYSE:SQ), Visa (NYSE:V) Checkout, Masterpass et al.
While these are a few front-facing payment processors that stand to benefit from increased online payments, other companies that provide allied services at different nodes of the entire payment spectrum assisting payment processors, also seem to gain.
Stocks to Gain
Global Payments Inc. (NYSE:GPN) with its recently-completed acquisition of Total System Services (NYSE:TSS) emerged as a preeminent pure play payments technology company, focusing on Small and Medium Businesses and leading Financial Institutions. The buyout will provide Global Payments with a market leading position in integrated payments besides owned software and e-commerce plus omnichannel solutions. This deal will be the biggest in the history of Global Payments, strengthening its market presence in the payments industry, which is expanding rapidly and transforming from physical to cashless and electronic transactions.
The stock sports a Zacks Rank #1 (Strong Buy) and has gained 72% in a year’s time. For 2020, the company’s earnings are expected to grow 22% compared with the industry’s rally of 17.4%. You can see Zacks Investment Research
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