The digital revolution has changed the world over the past decade and a half, spawning new technologies, new ways to use technology, and bringing old businesses into the 21st century. Nowhere is this more evident than in the financial sector. Banking and financial services have benefited enormously from bringing technology into the mix – and their gains have given us a new word to describe it, fintech.
Wells Fargo’s 5-Star Analyst Jeff Cantwell puts the bullish case for fintech in stark terms: “We see a $1.5 billion annual revenue opportunity for fintech companies globally and expect 6% annual growth over the next decade…Now is a very good time for investors to take a fresh look at fintech given current valuations. We expect the fundamentals of these companies to strengthen in 22/23 and that the group’s current discount to the broader market will not hold.
Against this backdrop, Cantwell has identified 2 fintech stocks that it believes will move higher in the coming months. And he is not alone in his optimistic attitude. According to TipRanks database, both tickers carry a Strong Buy consensus rating from the rest of the street. Let’s take a closer look.
Paymentus Holdings (PAY)
The first is Paymentus, a bill payment financial technology company offering cloud-based solutions as an omnichannel integrated payment platform. The company’s product line offers the latest payment management technologies to more than 1,700 billers and financial institutions. One figure will show the size of the Paymentus market: in 2021, the company cleared more than 280 million payment transactions.
Paymentus went public in May last year, putting 10 million shares on the market at $21 each and raising more than $210 million in gross proceeds. The stock has fallen around 42% so far in 2022 and is now trading slightly below its IPO price.
This loss occurred even as the company announced good financial results. Paymentus released its first set of 2Q21 results and posted revenue of $93.5 million. This amount increased to $101.6 million in 3Q21, and in the last quarter, 4Q21, it increased again to $108.1 million. The number of 4Qs increased by 31% year over year. In its core business, payment transaction processing, Paymentus posted strong growth in the fourth quarter. The company processed 83.3 million transactions, up about 54% year-over-year.
For the full year of 2021, Paymentus generated $395.5 million in revenue, up about 31% from 2020. The company said it had $168.4 million in cash at the end of 2021.
Cantwell sees a clear path for this company, for two reasons: the first is the quality of Paymentus, and the second is the known waste in its niche. The analyst writes, “We view Paymentus as a ‘next-gen’ disruptor, and expect it to gain even more share over the next two years as the business continues to operate in a space ( bill payments) that is otherwise characterized by inefficiency. The natural consequence of these stock gains by Paymentus will be a strong expansion in the company’s revenue and adjusted gross profit… . Longer term, we also believe Paymentus will grow Adjusted EBITDA margins and improve profitability as it consolidates its leading position in bill payments. »
To that end, Cantwell initiated a hedge on the shares of Paymentus with an overweight (i.e. buy) rating and a price target of $31. Investors are eyeing year-over-year gains of 52%, if Cantwell’s forecast plays out as expected. (To see Cantwell’s track record, Click here)
It is clear from the analyst consensus that the Street agrees with this bullish take. Paymentus has 5 positive reviews, making the Strong Buy consensus rating unanimous. The shares are trading at $20.36 and their average target of $33.60 implies a 65% upside from that level. (See Paymentus’ stock forecast on TipRanks)
Global Payments (GPN)
Wells Fargo’s second choice we’re considering is another payment processor – but where Paymentus focuses on the North American market, Global Payments reaches the world. The company has 4 million customers in more than 100 countries; it provides services to sellers, offering payment technology to merchants to process credit cards, debit cards, digital payments, and even new contactless payments. Global Payments handles over 50 billion transactions each year.
In February this year, Global Payments released its fourth quarter and full year results for 2021, and posted record highs in both. For the quarter, the company posted revenue of $2.19 billion, up 13% year-over-year, as well as diluted earnings of 72 cents per share, up 18% compared to the fourth quarter of the previous year.
Looking at 2021 as a whole, the company’s revenue is $8.52 billion. Compared to $7.42 billion in 2020, this is a gain of about 15%. Diluted EPS for 2021 was $3.29, up 68% from $1.95 in 2020.
Global Payments has a solid foundation, a fact noted by Cantwell in its coverage initiation report. The analyst points to the company’s clear strengths – its global reach, high revenue – and writes: “We expect GPN to grow EPS rapidly over the next two years as it increasingly amplifies its leading positions in payments and software… We expect strong company-wide financial results on strong revenue performance (revenue growth: 9% in 22/23), driven by Merchant Solutions, where we are seeing double-digit revenue growth in 22/23 thanks to continued strong performance in North America.”
“Bottom line, we believe GPN is undervalued at current levels. The risk/reward ratio looks favorable to us here,” the analyst summed up.
Consistent with this bullish stance, Cantwell rates the stocks overweight (i.e. buy) and gives them a price target of $194 which indicates confidence in a 39% year-over-year upside.
Overall, this global company has garnered 15 analyst ratings over the past few weeks and they split 13 to 2 in favor of Buys over Reserves, for a Strong Buy consensus rating on the street. GPN carries an average analyst price target of $188.14, implying an upside of around 35% from the current trading price of $138.90 over the next 12 months. (See GPN stock forecast on TipRanks)
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Warning: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.