The recent rate hike by the Federal Reserve is anticipated to favor the consumer financial services industry. Technological advancements, digitalization, and swift loan approval processes are expected to further boost the sector, enhancing its prospects for growth and expansion.
As a result, fundamentally sound consumer financial services stocks Mastercard Incorporated (MA), PayPal Holdings, Inc. (PYPL), and AssetMark Financial Holdings, Inc. (AMK) that show robust growth potential could be wise additions to your portfolio. Let’s understand this in detail.
Consumer financial services encompass a wide range of products and offerings, including current and savings accounts, online payment options, credit and debit cards, mortgage and commercial loans, securitizations, and more. These services cater to the diverse financial needs of individual consumers and households.
Rising interest rates conventionally favor such financial organizations. The Federal Reserve's recent interest rate hike, raising benchmark borrowing costs to their highest level in 22 years, by a quarter percentage point to a target range of 5.25%-5.5%, is expected to positively impact the sector.
Moreover, easy accessibility to various loans is driving the consumer finance industry. The availability of loans and credits via digital payment platforms is creating further lucrative growth prospects for the global consumer finance market.
Artificial Intelligence (AI) tools are also revolutionizing finance by streamlining risk management, fraud detection, compliance, and customer service. According to a report by Blue Weave Consulting, the global consumer finance market size is projected to grow at a CAGR of 7.1% and reach $1.96 trillion by 2029.
The Dow Jones US Consumer Finance Index, with a 14.1% year-to-date return, exemplifies investors' keen interest in consumer finance stocks.
Let’s now delve into the fundamentals of the featured stocks.
Mastercard Incorporated (MA)
MA facilitates global payments by connecting consumers, financial institutions, merchants, governments, and businesses. Its brands, which include MasterCard, Maestro, and Cirrus, offer diverse payment solutions. These include consumer credit, consumer debit, prepaid, and commercial credit and debit options.
On May 26, MA and UniCredit announced a significant global expansion of their payment partnership. This unprecedented collaboration, involving 13 banks across 12 markets and 20 million cards, grants MA access to UniCredit's collective strength. This should strengthen MA's position in the card payment sector and unlock new growth opportunities.
On May 22, MA and HealthLock joined forces to protect millions of Americans against medical bill fraud, claim errors, and overcharges. Recent data indicates medical overbilling, fraud, and abuse cost Americans an estimated $325 billion. Health record breaches by fraudsters surged to over 59 million cases in 2022 from 40 million in 2020.
By collaborating with HealthLock, MA gains the advantage of its profound expertise in combating fraud and innovative data security measures. The partnership would ensure millions of U.S. cardholders trust that their medical data is protected, ensuring precise and secure healthcare payments and claims, further enhancing MA's position in the market.
Over the past three years, MA’s revenue grew at a 13.3% CAGR. The company’s EBITDA and net income rose at CAGRs of 14.1% and 11.8%, respectively. Furthermore, the company’s EPS and total assets increased at CAGRs of 13.9% and 6.7%, respectively, during the same period.
For the second quarter that ended June 30, 2023, MA’s adjusted net revenue increased 14.2% year-over-year to $6.27 billion. Its cash inflow from operating activities rose 8.9% from the year-ago value to $4.62 billion. In addition, the company’s adjusted net income and adjusted EPS grew 9.8% and 12.9% year-over-year to $2.74 billion and $2.89, respectively.
The consensus revenue estimate of $25.23 billion for the fiscal year (ending December 2023) reflects a 13.5% year-over-year improvement. Likewise, the consensus EPS estimate of $12.18 for the ongoing year indicates a 14.3% rise year-over-year. Moreover, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Shares of MA have gained 13.3% year-to-date to close the last trading session at $392.96.
MA’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
MA has a B grade for Growth, Stability, and Quality. It has ranked #5 in the 48-stock Consumer Financial Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MA’s rating for Value, Momentum, and Sentiment here.
PayPal Holdings, Inc. (PYPL)
PYPL facilitates global digital payments for merchants and consumers. Its platform permits seamless transactions in about 200 markets and approximately 150 currencies, offering withdrawal of funds to bank accounts in 56 currencies. Additionally, users can maintain balances in their PYPL accounts in 25 currencies.
On July 26, PYPL and Microsoft Corporation (MSFT) unveiled their collaboration, integrating PYPL's Pay Later solution in several countries. Having served as a trusted checkout method for Microsoft Store customers for over 16 years, this partnership enables PYPL to provide MSFT access to its full suite of capabilities, enhancing the overall shopping experience for customers.
Moreover, on June 20, PYPL and leading global investment firm KKR & Co. Inc. (KKR) announced an exclusive multi-year agreement for a €3 billion ($3.30 billion) replenishing loan commitment.
KKR will purchase up to €40 billion ($44.06 billion) of Buy Now, Pay Later (BNPL) loan receivables originated by PYPL in France, Germany, Italy, Spain, and the United Kingdom. Collaborating with KKR will accelerate PYPL's Pay Later originations in response to European market demand while preserving free cash flow for its other strategic initiatives.
Over the past three years, PYPL’s revenue increased at a CAGR of 15.4%. Its EBITDA and net income grew at CAGRs of 17% and 13%, respectively. Furthermore, the company’s EPS and total assets increased at CAGRs of 14.3% and 12.5%, respectively, during the same time frame.
During the first quarter that ended March 31, 2023, PYPL’s net revenues increased 8.6% year-over-year to $7.04 billion. Its non-GAAP operating income rose 19.1% from the year-ago value to $1.60 billion. Furthermore, the company’s non-GAAP net income and non-GAAP EPS came in at $1.33 billion and $1.17, up 28.5% and 33% year-over-year, respectively.
PYPL’s revenue is expected to grow 7.5% year-over-year to $29.59 billion for the fiscal year ending December 2023. Likewise, the consensus EPS estimate of $4.94 for the same period reflects a 19.6% rise year-over-year. Furthermore, the company topped the consensus EPS estimates in all of the trailing four quarters.
Over the past month, the stock has gained 11.9% to close the last trading session at $73.98.
PYPL’s outlook is reflected in its POWR Ratings. The stock has a B grade for Growth. It is ranked #17 out of 48 stocks within the Consumer Financial Services industry.
Click here to access additional PYPL ratings (Value, Momentum, Stability, Sentiment, and Quality).
AssetMark Financial Holdings, Inc. (AMK)
AMK provides an open-architecture product platform and offers client advice, asset allocation options, practice management, support services, and technology for financial advisers. Additionally, the company delivers SaaS-based solutions for financial planning, wellness, and digital engagement with clients.
During the fiscal first quarter, the AMK platform welcomed over 2,700 new households and 166 producing advisors. Natalie Wolfsen, AMK's CEO, highlighted that first-quarter new producing advisors reached the highest since the second quarter of 2022, with platform production at its peak since the fourth quarter of 2021.
Furthermore, the company achieved an 18.8% annualized production lift from existing advisors in the first quarter, indicating that advisors continued to grow organically and increase wallet share on the platform.
Over the past three years, AMK’s revenue grew at a 13.7% CAGR. The company’s EBITDA and normalized net income increased at CAGRs of 66.1% and 99.2%, respectively. Furthermore, its total assets and levered cash flow rose at CAGRs of 6.9% and 34.5%, respectively, during the same period.
During the fiscal first quarter (ended March 31, 2023), AMK’s total revenue increased 19.1% year-over-year to $176.56 million. Its adjusted EBITDA grew 32.1% year-over-year to $58.79 million. Additionally, the company’s adjusted net income and adjusted EPS stood at $39.70 million and $0.53, up 37.9% and 35.9% from the prior year’s period, respectively.
Analysts expect AMK’s revenue to increase 21.7% year-over-year to $555.06 million for the fiscal year ending December 2023. Similarly, the company’s EPS for the current year is expected to grow 28.2% from the prior year to $2.27. Also, the company surpassed the consensus revenue estimates in all four trailing quarters.
Shares of AMK have gained 60.3% over the past year to close the last trading session at $30.25.
AMK’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
AMK has a B grade for Growth and Stability. It is ranked #12 out of 48 stocks within the same industry.
Click here to access additional AMK ratings for Value, Momentum, Quality, and Sentiment.
What To Do Next?
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MA shares were trading at $395.31 per share on Monday afternoon, up $2.35 (+0.60%). Year-to-date, MA has gained 14.21%, versus a 20.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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