Given several factors, such as increasing disposable income, a growing number of homeowners, alternative investment tools, rising urbanization, and the fintech revolution, the financial services market seems well-positioned to experience considerable growth and expansion in the long term.
Given the industry’s robust outlook, fundamentally sound financial stocks Visa Inc. (V) and Mastercard Incorporated (MA) could be ideal additions to your portfolio in March.
The staggering record high of $1.13 trillion at the end of 2023 of credit card debt owed by all Americans reflects their reliance on the financial market, particularly on credit cards and payment systems. Alone, in the fourth quarter of 2023, card balances increased by about $50 billion, or 4.6%.
Further, U.S. banks have predicted an upsurge in demand for loans this year as the interest rates are expected to fall this year, despite the further tightening of credit standards on certain types of loans, as per a Federal Reserve survey of senior bank lending officers.
The global credit card payment market was valued at $461 billion in 2023. It is anticipated to expand at a CAGR of 8.5% during the analysis period (2024-2032), reaching a value of $960.60 billion by 2032. Rising online purchasing habits are one of the key drivers of the growing market share.
Recent technological progress and innovation have brought the fintech sector from the fringes to the forefront of the financial market. This has been fuelled by the robust growth of the banking sector, rapid digitization, changing customer preferences, and increasing support from investors and regulators.
As of July 2023, publicly traded fintechs held a market capitalization of $550 billion, a more than two times increase compared to 2019. Also, around the same time, there were more than 272 fintech unicorns, with a combined valuation of $936 billion.
The global financial services market is expected to grow from $31.14 trillion in 2023 to $33.54 trillion in 2024, growing at a CAGR of 7.7%. Further, the market is anticipated to register a value of $44.93 trillion in 2028, exhibiting growth at a CAGR of 7.6% during the forecast period.
The rapid rise of digitalization and fintech innovations is reshaping the landscape of the consumer financial services industry. Disruptive digital technologies such as artificial intelligence (AI), blockchain, and big data analytics are enabling more efficient and convenient financial solutions, driving the industry’s expansion.
Given the industry’s tailwinds, let’s delve into the fundamentals of the two best Consumer Financial Services stock picks, beginning with the second choice.
Stock #2: Visa Inc. (V)
V is a global payment technology company. It operates VisaNet, Visa Direct, Visa B2B Connect, Visa Cross-Border Solution, and Visa DPS. The company offers its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brand names. It serves merchants, financial institutions, and government entities.
On March 5, 2024, V and Western Union (WU) expanded their collaboration through a 7-year agreement. As per the new deal, Western Union customers will be able to send money to their family and friends’ eligible Visa cards and bank accounts in 40 countries across five regions.
Further, companies are also planning to issue Western Union/Visa Debit Cards across North America, Asia Pacific, Latin America and Europe, widening their operational scope.
On February 22, 2024, V unveiled its revamped Singapore Innovation Center, a dedicated space for partners, clients and businesses in Asia Pacific. The new center advanced V’s global strategy to pioneer smarter payments through collaboration with Asia Pacific partners.
On January 16, V completed its acquisition of Pismo – a global cloud-native issuer processing and core banking platform. The combination of V and Pismo will offer clients core banking and card-issuer processing capabilities across all product types via cloud-native APIs.
MA’s trailing-12-month gross profit margin and EBITDA margin of 97.78% and 70.23% are 64.3% and 234.4% higher than the industry average of 59.51% and 21%. Similarly, the stock’s trailing-12-month levered FCF margin of 45.49% is 139.9% higher than the industry average of 18.96%.
For the fiscal 2024 first quarter that ended on December 31, 2023, V’s net revenue increased 8.8% year-over-year to $8.63 billion. The company’s operating income grew 17% from the year-ago value to $5.95 billion. Its non-GAAP net income and non-GAAP EPS were $4.94 billion and $2.41, up 7.8% and 10.5% year-over-year, respectively.
In addition, the company’s cash and cash equivalents and total assets came in at $13.59 billion and $91.41 billion as of December 31, 2023, respectively.
Analysts expect V’s revenue and EPS for the second quarter (ending March 2024) to increase 8.1% and 16.2% year-over-year to $8.63 billion and $2.43, respectively. Furthermore, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
V’s stock has gained 13.5% over the past six months and 30.8% over the past year to close the last trading session at $280.56.
V’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Stability and Momentum. Within the B-rated Consumer Financial Services industry, V is ranked #7 among 45 stocks.
Click here to access additional ratings of V (Growth, Value, and Sentiment).
Stock #1: Mastercard Incorporated (MA)
MA is a technology company that provides transaction processing and other payment-related products and services worldwide. It offers integrated products and value-added services to account holders, merchants, financial institutions, digital partners, businesses, governments, and other organizations.
On March 5, MA entered into a new partnership with Uber (UBER) alongside Payfare to launch the Uber Pro Card, providing free instant payouts after every trip or delivery and enhanced loyalty features for drivers and delivery people on the Uber platform in Canada, powered by Payfare's leading digital banking app and platform.
"Through this partnership with Uber and Payfare, we are enabling app-based workers to scale their business by providing them with cash flow when they need it most," said Balinder Ahluwalia, Senior Vice President of Market Development, Mastercard in Canada.
On February 28, MA signed a multi-market agreement with MTN Group Fintech to connect millions of people and small businesses across Africa with digital tools to transact through secure mobile payments, expanding access to the benefits of the cashless digital economy.
The partnership will use MA’s cutting-edge technology and capabilities to support MTN’s ambition to become Africa’s largest fintech platform for both merchants and consumers. It will widen MA’s customer base across 13 markets in Africa through MTN's overall subscriber base at 290 million and 60 million active monthly MoMo (Mobile Money) wallets.
On February 6, MA’s board of directors declared a quarterly cash dividend of $0.66 per share. The cash dividend will be paid on May 9, 2024, to holders of record of its Class A common stock and Class B common stock as of April 9, 2024.
MA pays an annual dividend of $2.64, which translates to a yield of 0.56% at the current share price. Its four-year average dividend yield is 0.53%. Moreover, the company’s dividend payouts have increased at a CAGR of 17% over the past five years. MA has raised its dividends for 12 consecutive years.
MA’s trailing-12-month gross profit and EBIT margin of 100% and 57.96% are 68% and 155.9% higher than the 59.51% and 22.65% industry average. Likewise, the stock’s trailing-12-month net income margin of 44.61% is 89.5% higher than the industry average of 23.53%.
For the fourth quarter that ended December 31, 2023, MA’s net revenue increased 12.6% year-over-year to $6.55 billion. Its operating income grew 5.9% from the year-ago value to $3.37 billion. The company’s adjusted net income and adjusted EPS of $3.0 billion and $3.18 indicate growth of 20% from the prior year’s quarter.
Further, the company’s total assets came in at $42.45 billion as of December 31, 2023, compared to total assets of $38.72 billion as of December 31, 2022.
Street expects MA’s EPS for the first quarter (ending March 2024) to increase 15.5% year-over-year to $3.23, and its revenue is expected to grow 10.3% year-over-year to $6.34 billion. In addition, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of MA have surged 12.6% over the past six months and 36.1% over the past year to close the last trading session at $469.16.
MA’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, which equates to a buy in our proprietary rating system.
MA has an A grade for Quality and a B for Stability, Sentiment, and Momentum. It is ranked #4 among 45 stocks in the B-rated Consumer Financial Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MA’s ratings for Growth and Value here.
What To Do Next?
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V shares fell $0.08 (-0.03%) in premarket trading Tuesday. Year-to-date, V has gained 7.96%, versus a 7.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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