Wednesday , August 12, 2020

Payment Stocks Sputtered Toward 2019’s End, but They Still Outperformed the Market for the Year

Payment-company stocks lost ground as a group in December and didn’t match the major market indexes in the fourth quarter, but they still bested the indexes for all of 2019, according to a new report.

Twenty-six electronic-transaction processor stocks monitored by Chicago-based Barrington Research Associates Inc. posted a negative mean return of 2.05% in December. That  compares with positive returns of 3.54% for the Nasdaq Composite Index, 2.86% for the Standard & Poor’s 500 Index, and 1.74% for the Dow Jones Industrial Average. 

The processors posted a positive mean return of 4.08% for the fourth quarter, but they still trailed the indexes: 12.17% for the Nasdaq, 8.53% for the S&P 500, and 6.02% for the Dow.

But for all of 2019, the payment stocks posted a group mean return of 36.14%, slightly ahead of the Nasdaq at 35.23% and well above gains of 28.88% and 22.34% for the S&P 500 and Dow, respectively.

Barrington managing director Gary Prestopino isn’t surprised the processors came back to Earth late in the year. “If you look at them for the first nine months of the year, the group was up about 31%. There was some pretty strong outperformance,” Prestopino tells Digital Transactions News.

Big drops in share prices by a handful of companies pulled down the group in the fourth quarter. Card manufacturer CPI Card Group Inc. suffered the worst loss at 65.3%. Next was wire-transfer provider MoneyGram International Inc., down 47.2%, and merchant processor Usio Inc., down 22.4% for the quarter.

For the year, the biggest gainer was Everi Holdings Inc., a provider of payment processing and other services for the casino industry, up 160.8%. Next was unattended-payments provider USA Technologies Inc., up 90.2%, and First Data Corp., whose stock rose 86.9% before the company was acquired by Fiserv Inc. in late July. “The leaders still did really well,” says Prestopino.

Shares of Mastercard Inc. and Visa Inc. both well outperformed the indexes in 2019, with Mastercard up 58.3% and Visa rising 42.4%. Among other prominent players, PayPal Holdings Inc.’s shares rose 28.6%, while Square Inc. trailed the indexes with an 11.5% gain.

The Fiserv/First Data deal was the first of three huge payment-processor mergers in 2019. Shares of Global Payments Inc., which acquired Total System Services Inc. (TSYS) in September, finished the year up 77%. Fidelity National Information Services Inc. (FIS), which in July became the new owner of Worldpay Inc., saw its shares rise 35.6%. The Barrington report doesn’t track Fiserv.

While some of the industry’s biggest players have been acquired, Prestopino believes mergers and acquisitions will continue in the transaction-processing industry. Some smaller players have strong fundamentals and could post strong returns this year—and also be acquisition candidates. One he cites is Usio, which slipped 6% in 2019. “I think that one’s going to blossom this year.”

USA Technologies, meanwhile, is emerging from an accounting mess but now faces a proxy fight from its largest shareholder. “Look for some fireworks there,” says Prestopino.

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