The consumer price index (CPI) rose 8.3% year-over-year in August, beating economists’ estimates. The stubborn inflation is expected to spur the Fed to keep increasing interest rates aggressively, potentially triggering a recession.
With inflation hovering near multi-decade high levels and the job market remaining tight, the Fed has been increasing interest rates aggressively this year to bring down the prices. While the rising rate environment has affected most sectors, it helped financial companies expand their revenues, which are positively correlated with interest rates.
Moreover, digital transformation has helped financial service providers simplify monetary transactions. According to the Business Research Company, the global financial services market is expected to grow at a 9.6% CAGR to $37.34 trillion by 2026.
With the interest rates expected to increase further, investors could invest in fundamentally strong financial services stocks WNS (Holdings) Limited (WNS), Everi Holdings Inc. (EVRI), and Forrester Research, Inc. (FORR). However, one should avoid Marathon Digital Holdings, Inc. (MARA) due to its inability to capitalize on the rising rate environment.
Stocks to Buy:
WNS (Holdings) Limited (WNS)
Headquartered in Mumbai, India, WNS is a business process management (BPM) company that operates through WNS Global BPM and WNS Auto Claims BPM segments. It offers its solutions to industry-specific clients, customer experience services, finance and accounting, human resources, procurement, and research and analytics to re-imagine the digital future of businesses.
On July 1, 2022, WNS acquired Vuram, a global leader in enterprise automation services. With this acquisition, the company expands its intelligent automation capabilities to achieve its short-term and long-term strategic plans.
WNS’ revenue increased 16.6% year-over-year to $295.30 million for the first quarter that ended June 30, 2022. The company’s non-GAAP operating profit increased 17.7% year-over-year to $57.90 million. Also, its non-GAAP net income increased 17.7% year-over-year to $45.90 million. In addition, its adjusted EPS came in at $0.90, representing an increase of 18.4% year-over-year.
Analysts expect WNS’ EPS for the quarter ending December 31, 2022, to increase 7.1% year-over-year to $0.73. Its revenue for the quarter ending December 31, 2022, is expected to increase 10.2% year-over-year to $287.71 million. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 23.7% to close the last trading session at $83.35.
WNS' POWR Ratings reflect solid prospects. According to our proprietary rating system, it has an overall rating of B, translating to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Stability and Quality. It is ranked #8 out of 107 stocks in the Financial Services (Enterprise) industry. Click here to see the other ratings of WNS for Growth, Value, and Momentum.
Everi Holdings Inc. (EVRI)
EVRI is a creative entertainment and technology solutions provider for the casino and digital gaming industry. The company operates through two segments: Games and Financial Technology Solutions (FinTech). It provides gaming operators with financial technology products and services.
On May 3, 2022, EVRI acquired Intuicode Gaming Corporation, a privately owned game development and engineering firm focused on Historical Horse Racing (HHR) games. With this acquisition, EVRI expects to leverage the additional expertise to accelerate entry and growth in the expanding HHR market.
For the fiscal second quarter that ended June 30, 2022, EVRI’s revenue increased 14.3% year-over-year to $197.20 million. Its operating income increased marginally from the prior-year quarter to $54.50 million. The company’s adjusted EBITDA came in at $94.40 million, up 2.1% year-over-year. Also, its free cash flow improved 26.3% year-over-year to $49.50 million.
The consensus revenue estimate of $194.37 million for the third quarter ending September 30, 2022, represents a growth of 15.5% from the same period last year. The consensus EPS estimate of $0.34 for the current quarter indicates a 388.3% increase year-over-year.
The stock has gained 7% over the past three months to close the last trading session at $17.74.
EVRI’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. Within the same industry, it is ranked #2. To see the other ratings of EVRI for Growth, Momentum, and Stability, click here.
Forrester Research, Inc. (FORR)
FORR is an independent research and advisory firm operating through the Research, Consulting, and Events segments. Its primary subscription research product offers clients access to its research designed to inform their strategic decision-making.
On June 7, 2022, the company announced Forrester Decisions for Digital Business & Strategy, a new research service designed to help digital leaders across industries deliver business-wide digital strategies to increase customer acquisition and profitability. Service addresses digital leaders' utmost priorities to deliver stronger CX and drive customer retention and loyalty.
In the fiscal second quarter that ended June 30, 2022, FORR’s net revenues increased 15.2% year-over-year to $148.25 million. Its adjusted income from operations grew 41.8% from the year-ago value to $27.89 million, while its adjusted net income increased 51.4% from the prior year period to $19.22 million. In addition, FORR’s non-GAAP EPS came in at $1, registering an increase of 51.5% year-over-year.
Analysts expect FORR’s EPS for fiscal 2022 to increase 10% year-over-year to $2.30. Its revenue for the quarter ending September 30, 2022, is expected to increase 7.3% year-over-year to $126.80 million. The stock has surpassed the consensus EPS estimates in each of the trailing four quarters.
FORR’s shares have declined 13.2% over the past month to close the last trading session at $38.58.
FORR’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth, Sentiment, and Quality and a B for Value and Stability. In the Financial Services (Enterprise) industry, it is ranked first. Click here to see FORR’s rating for Momentum.
Stock to Sell:
Marathon Digital Holdings, Inc. (MARA)
MARA is a digital asset company that focuses on the blockchain ecosystem and the generation of digital assets. The company holds bitcoins in an investment fund.
On August 1, 2022, MARA expanded its credit facility by increasing its existing debt funding capacity by $100 million. This debt facility is expected to increase the company’s debt burden.
MARA’s revenues for the fiscal second quarter ended June 30, 2022, decreased 15% year-over-year to $24.92 million. Its operating loss widened 61.6% from the year-ago value to $178.21 million. The company’s net loss came in at $191.65 million, widening 76% from the year-ago period, while its adjusted EBITDA loss widened 40.1% year-over-year to $147.20 million. Also, its loss per share widened by 60.5% year-over-year to $1.75.
Analysts expect MARA’s EPS to remain negative for fiscal 2022. Its revenue for the quarter ending September 30, 2022, is expected to decline 46.1% year-over-year to $27.85 million. It has failed to surpass the consensus EPS estimates in each of the trailing four quarters. The stock has lost 66.3% over the past nine months to close the last trading session at $12.07.
MARA’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Growth, Value, Stability, Sentiment, and Quality. Click here to see MARA’s rating for Momentum.
WNS shares were trading at $82.94 per share on Friday afternoon, down $0.41 (-0.49%). Year-to-date, WNS has declined -5.99%, versus a -18.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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