Evertec vs. Usio: Which Digital Payment Stock is a Better Buy?

EVERTEC, Inc. (EVTC) is based in San Juan, Puerto Rico. The company provides a range of merchant acquiring, payment processing, and business process management services. The company operates through three segments: Merchant Acquiring, Payment Processing, and Business Solutions. In comparison, Usio, Inc. (USIO) in San Antonio, Tex., is a payment processing company that provides integrated payment processing services to merchants and businesses, including automated clearinghouses, processing, credit, prepaid card, and debit card-based processing services.

Digital payments were picking up pace with the widespread use of smartphones and the growing popularity of e-commerce, but the COVID-19 pandemic accelerated the adoption of contactless and digital payments due to restriction-driven changes in the economy. Digital payments can be categorized under browser-based payments, in-app purchases, and in-store checkout using a mobile phone or QR code. According to a ResearchandMarkets.com report, the global digital payment market is projected to grow at a 10.9% CAGR to $12.55 trillion by 2027. The rapid growth in digital payments will benefit digital payment companies such as EVTC and USIO.

EVTC’s stock has declined 0.8% in price over the past nine months, while USIO has gained 50.4%. EVTC has gained 1.6% over the past year versus USIO’s 56.9% decline.

Which is a better stock to buy now? Let’s find out.

Latest Developments

On Feb. 24, 2022, EVTC announced that it had agreed to acquire 100% of the outstanding shares of Chile-based payment solutions and business technology company BBR SpA. EVTC’s President and CEO Mac Schuessler said, “The acquisition of BBR complements our existing technology and product portfolio in Chile and opens the Peruvian market for Evertec. With this acquisition, we continue expanding our footprint and solidifying our position as a leading Latin American payment processing company.”

On Dec. 7, 2021, USIO announced that it had extended an exclusive agreement to provide Automated Clearing House payment solutions to leading cryptocurrency platform Voyager Digital for another three years. USIO’s President and CEO Louis Hoch said, “We are pleased to announce a three-year extension of this exclusive agreement. It remains the foundation of our growing relationship with Voyager that now includes our role as program manager and processor for their newly introduced debit card, as well as incorporating Voyager’s technology into our card processing solutions to enable the merchants USIO serves to accept cryptocurrency as a form of payment-in-person, online, via electronic invoice and text-to-pay, among others.”

Recent Financial Results

EVTC’s revenues increased 15.6% year-over-year to $155.23 million for its fourth quarter ended Dec. 31, 2021. The company’s income from operations increased 28% year-over-year to $50.20 million. Also, its net income increased 27.2% year-over-year to $41.18 million. In addition, its EPS came in at $0.56, representing an increase of 27.2% year-over-year.

USIO’s revenues increased 85.7% year-over-year to $17.42 million for the fourth quarter, ended Dec. 31, 2021. The company’s net income declined 74.6% year-over-year to $38,810. In addition, its adjusted EBITDA increased 392.5% year-over-year to $1.25 million. Also, its total operating expenses increased 46.6% year-over-year to $4.56 million.

Past and Expected Financial Performance

EVTC’s revenue and total assets have grown at CAGRs of 9.1% and 7.2%, respectively, over the past three years. Analysts expect EVTC’s revenue to increase 1.4% in the current year and 5.1% next year. The company’s EPS is expected to decline 8% in the current year and grow 8.3% next year. Furthermore, its EPS is expected to grow at a 14.1% rate  per annum over the next five years.

USIO’s revenue and total assets have grown at CAGRs of 35.2% and 25.1%, respectively, over the past three years. Analysts expect the company’s revenue to increase 18.2% in the current year and 15.7% next year. The company’s EPS is expected to grow 150% in the current year and 900% next year.

Profitability

EVTC’s trailing-12-month revenue is 9.5 times what USIO generates. EVTC is also more profitable, with gross profit  and EBITDA margins of 57.58% and 41.64%, respectively, compared to USIO’s 25.24% and 4.02%.

Furthermore, USIO’s ROCE, ROC, and ROA are negative compared to EVTC’s respective 40.08%, 13.19%, and 14.08%.

Valuation

In terms of forward non-GAAP P/E, USIO is currently trading at 140x, which is 755.7% higher than EVTC’s 16.36x. Furthermore, USIO’s 91.82x forward EV/EBIT ratio  is 403.6% higher than EVTC’s 18.23x.

So, EVTC is more affordable.

POWR Ratings

EVTC has an overall B rating which equates to a Buy in our proprietary POWR Ratings system. In contrast, USIO has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

EVTC has a B grade for Stability, which is in sync with its 0.99 beta. In comparison, USIO has a C grade for Stability. This is justified, because  it has a 1.65 beta.

Also, EVTC has a B grade for Quality. This is justified given its levered FCF margin of 20.4%, which is higher than the industry’s 10.2% average. Comparatively, USIO’s 2.6% trailing-12-month levered FCF margin is 74.3 % lower than the 10.2% industry average, and in sync with its Quality grade of C.

Among the 112 stocks in the Financial Services (Enterprise) industry, EVTC is ranked #17. In comparison, USIO is ranked #43.

Beyond what I have stated above, we have also rated the stocks for Growth, Value, Momentum, and Sentiment. Click here to view all the EVTC ratings. Also, get all the USIO ratings here.

The Winner

The rising popularity and acceptance of digital payments bode well for EVTC and USIO. While EVTC and USIO are both expected to gain, we think it  is better to bet on EVTC now because of its lower valuation, higher profitability, and robust financials.

Our research shows that odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the other top-rated stocks in the Financial Services (Enterprise) industry here.

EVTC shares were trading at $41.29 per share on Wednesday afternoon, up $0.09 (+0.22%). Year-to-date, EVTC has declined -17.29%, versus a -5.80% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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