Transaction-Processor Stocks Beat the Market Once Again

Boosted by profits that mostly exceeded analysts’ expectations, payments companies in August once again beat the major stock indexes even though the markets themselves performed well, according to a new report from Barrington Research Associates Inc.

Chicago-based Barrington said Wednesday that 27 publicly traded electronic-transaction processors it tracks posted a mean return of 11.03% last month. In contrast, the Nasdaq Composite Index had a mean return of 5.71%, the Standard &Poor’s 500 Index rose 3.03%, and the Dow Jones Industrial Average gained 2.16%. Payments stocks also handily beat the major indexes in 2018’s first half .

Powering the strong processor gains were profits that exceeded analysts’ expectations for 22 of the 26 companies that reported results in July and August for the quarter ending June 30. Many companies got a boost to the bottom line from the recent federal tax cuts, and consumer spending, which drives payment volumes, also has been strong, Gary Prestopino, a managing director at Barrington, tells Digital Transactions News.

And then there’s the basic structure of the payments industry, which is attractive to many investors. “It’s always been a good industry to invest in because it’s a high recurring-revenue model,” Prestopino says.

Leading the pack was payment card manufacturer CPI Card Group Inc., whose share price rose 51.92% in August. Littleton, Colo.-based CPI’s stock had been beaten down earlier in the year by short sellers and slower-than-expected orders, but the company’s prospects have been improving recently, according to Prestopino.  “CPI Card Group came back from the dead,” he says.

In second place was ATM network operator Cardtronics plc, which posted a 38.59% gain. The Houston-based firm is recovering from the loss of its biggest customer, convenience-store giant 7-Eleven Inc., and reported Aug. 2 that same-store U.S. withdrawal transactions rose 8% in the second quarter. Cardtronics also benefited from canceled or postponed interchange rate reductions by the Link network in the United Kingdom, a big market for the firm.

Merchant processor Square Inc., a payments favorite on Wall Street, took third place in August with a gain of 37.11%. While Square has focused considerable attention in recent quarters on larger merchants, investors still credit the company for finding revenue opportunities among its core merchant base of small businesses or part-time sellers, according to Prestopino. “They’re really benefiting from the ability to offer [card acceptance] to sectors of the market that didn’t take credit cards,” he says.

Bringing up the rear in August were South Africa-based Net 1 UEPS Technologies Inc., whose shares slumped 22.48%; Cypress-based Qiwi plc, off 10.07%, and The Western Union Co., down 6.15%.