Processor Stocks Eke Out a 2018 Gain Despite a Bloody Fourth Quarter

It was a nasty December and fourth quarter, but transaction-processor stocks still beat the major market indexes in 2018, according to an analysis by Barrington Research Associates Inc.

Twenty-six publicly traded processor stocks posted a mean return of 3.01% for the year versus a negative mean return of 6.24% for the Standard & Poor’s 500 Index, negative 5.63% for the Dow Jones Industrial Average, and negative 3.89% for the Nasdaq Composite Index, Chicago-based Barrington reported Thursday.

The processors managed to retain an annual gain despite a frightening 21% drop in the fourth quarter as fears about trade wars, rising interest rates, and other economic signs overshadowed Wall Street. That swoon was worse than the overall market’s fourth-quarter performance, when the Nasdaq fell 17.5%, the S&P 500 14%, and the Dow 11.8%. In December alone, processor stocks posted a mean negative return of 10.6% while the three major indexes dropped about 9%.

“It was really a tale of two periods,” Gary Prestopino, a managing director at Barrington Research, tells Digital Transactions News. “The first nine months were great, and then the group just got slaughtered.”

As of Sept. 30, the processor group had been up 27% for the year, with most companies reporting profit gains and many raising earnings and revenue guidance.

Despite the big dips in share prices over the past three months, the fundamentals of the payments business—including its strong recurring revenue streams—haven’t changed much, according to Prestopino. Thus, he predicts many payment firms will see their shares rise in 2019, though perhaps not as much as they did in 2018’s first nine months.

“The really high-quality well-established companies like Visa and Mastercard will continue to do well,” he says. Mastercard Inc.’s shares posted a 24.6% gain in 2018 while Visa Inc.’s rose 15.7%.

The year’s biggest gainer among the 26 payments companies was Puerto Rico-based processor Evertec Inc., whose share price jumped 110.3%. Next was merchant processor Square Inc., up 61.8%, and ATM network operator Cardtronics plc, up 40.4%.

The biggest loser of 2018 was wire-transfer provider MoneyGram International Inc., whose stock fell 84.8% in the wake of a failed buyout offer from China-based Ant Financial that died because of U.S. government resistance, lowered guidance, and concerns about the company’s debt, according to Prestopino. The other top-three losers were South Africa-based processor Net 1 UEPS Technologies Inc., down 60.6%, and vending machine payments provider USA Technologies Inc., off 60.1%.