Payment Services Provider Stocks to Consider

Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There are now many public companies offering electronic payment services, and demand is growing for the most part. With stock prices hovering at attractive levels, these may remain solidly performing stocks during 2013 and out four to five years. I recommend looking into the companies that own payment processing technology operations, such as eBay (NASDAQ: EBAY) and Intuit (NASDAQ: INTU), as well as the companies listed here.

Speaking of eBay, its PayPal merchant services business has been a primary source of growth, with payment volumes rising 28% in the December quarter. Notably, mobile payment volumes skyrocketed 250% last year behind a surge in consumer activity. Intuit boasts an expanding Payment Solutions unit, consisting of small business and web-based offerings, as well as GoPayment, a mobile service.

A few more payment services-focused companies:

Fiserv (NASDAQ: FISV)

About half of Fiserv’s revenues are derived from payment processing, such as electronic bill payment. It has a strong base of financial institution customers and is extending new products to such clients. Income growth is likely to persist, as management is forecasting share-earnings to climb 15% to 18% this year. The recent acquisition of OpenSolutions, a processing technology business targeting banks with over 3,300 clients, should be a boon to its bottom line.

Fiserv is reliant on a favorable financial institution spending climate for improved results. It would be a beneficiary of increased outsourcing of payment processes by banks. Buoyed partly by the Open Solutions buyout, it sees a solid pipeline of new business.

Importantly, it is addressing the mobile trend, having boosted its mobile subscriber count to 830,000, from just 1,000 in the course of three years. Financial firms are signing on to these offerings. Plus, Fiserv is poised for accelerated gains in bill payment totals.

In all, Fiserv is well-positioned to realize higher recurring revenues, along with that from newly launched offerings and additional clients. Margins should widen, too, on fixed costs of recurring sales. Share repurchases will also probably allow for better share earnings results.

FISV shares offer worthwhile appreciation potential in light of the industry factors stated above and specific momentum in the financial industry.

Global Payments (NYSE: GPN)

GPN’s revenues stem 100% from merchant services. Its transaction processing services are sold to consumers, merchants, and other entities. The end markets it serves are more wide ranging than FISV, as in addition to financial institutions it supplies gaming, government, healthcare, professional services, restaurants, retailers, universities, nonprofits and utilities.

Operating income advanced 21% in the November quarter, thanks to higher volumes and expense controls. The company subsequently announced a share repurchase program and upped its earnings outlook for 2013.

GPN stock is a good selection at this time. As an intermediary between merchants and clients, the company is building its customer base of small- and mid-sized merchants. It is also subject to payments to Independent Sales Organizations, crimping margins to some degree. Nevertheless, it is in store for another stellar year.

Summary

EBay and Intuit are better bets for diversification and less risk tolerance. The other two stocks mentioned, FISV and GPN, may appeal to a somewhat more venturesome investor.

 


dctotal owns shares of eBay. The Motley Fool recommends eBay and Intuit. The Motley Fool owns shares of eBay and Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus