Wall Street Gave a Thumbs Up to Payments Companies in 2015

It was a lousy December for payment stocks, but 2015 as a whole saw shares of electronic transaction processors far outperform the major market indexes, according to a new report from Chicago-based investment firm Barrington Research Associates Inc.

Shares of 28 payments companies posted a mean return of 11.47% last year versus respective declines of 0.73% for the S&P 500 Index and 2.23% for the Dow Jones Industrial Average, Barrington Research reports. The stocks of 15 firms gained while 12 declined, and one, wire-transfer provider The Western Union Co., did not change.

The party for payments stocks ended in December, when the group’s mean return fell 4.2%. The indexes also fell, but not as much: 1.76% for the S&P 500 and 1.66% for the Dow.

The yearly gains resulted from two major factors, Barrington Research analyst Gary Prestopino tells Digital Transactions News. One was what he calls “exogenous,” or one-time factors arising from outside events, including mergers, that lifted a number of companies. For example, merchant acquirer Heartland Payment Systems posted a 76% return, much of it coming in mid-December after larger rival Global Payments Inc.announced plans to buy Princeton, N.J.-based Heartland for $4.3 billion.

Atlanta-based Global itself posted a 60% return for the year, much of it because of Wall Street’s positive appraisal of its new chief executive, Jeffrey S. Sloan, according to Prestopino. And online wire-transfer provider Xoom Inc.’s stock zoomed up 42% before PayPal Holdings Inc. acquired the company.

On the flip side, wire-transfer provider MoneyGram International Inc. saw its shares fall 31%. Dallas-based MoneyGram is still recovering from the loss of much of its U.S. business thanks to Wal-Mart Stores Inc.’s move in 2014 to transfer most of its in-store domestic wire transfers from MoneyGram to Euronet Worldwide Inc.’s Ria subsidiary. And despite the strong lift that the EMV chip card conversion is giving to its U.S. business, point-of-sale terminal maker VeriFone Systems Inc.’s stock fell 25% in 2015.

The biggest loser in the group was Las Vegas-based Everi Holdings Inc., formerly Global Cash Access Holdings Inc., whose shares fell 39% last year. Everi, which provides ATMs and other payment services to casinos, lost money in three out of the four quarters ending Sept. 30.

Apart from one-time factors, the processors share a characteristic that investors like and helps explain their strong group performance, according to Prestopino. “These stocks have good recurring revenues,” he says.

Two smaller payments companies that “started to prove their worth,” according to Prestopino, were cross-border processor Planet Payment Inc., which posted a return of 47%, and USA Technologies Inc. (USAT), which with a 91% return led the group in 2015. Malvern, Pa.-based USAT had used its balance sheet for years to finance deployments of its wireless card readers for vending machines and expand its ePort Connect network, but of late has turned to third-party firms to assist in that effort. “That freed up their cash flow,” says Prestopino.

Columbus, Ga.-based Total System Services Inc. (TSYS) saw its shares climb 47% last year, partly on the strength of its $1.4 billion acquisition in 2013 of prepaid card services provider NetSpend Holdings Inc., according to Prestopino. NetSpend made TSYS a leading player in a high-growth market segment. “That acquisition has started to bear fruit,” he says.