The financial rebound of the previous two years has buoyed the monetary expertise sector.
And some fintech firms can proceed to thrive near-term, whilst financial development slows, Wells Fargo analysts say.
“Fintech fundamentals remained strong in the first quarter of 2022,” they wrote in a commentary. “Group revenue increased by 26.5% … while earnings per share (EPS) growth was a healthy 13.8%.”
Going ahead, “we expect to see the sector’s revenue growth begin to slow over the next two quarters,” the analysts mentioned. “Our sense also is that fintech management teams will begin placing greater focus on expenses and their bottom lines as the macro environment begins to soften.”
Payment service suppliers Wex (WEX) – Get WEX Inc. Report and Fleetcor Technologies (FLT) – Get FLEETCOR Technologies, Inc. Report prime the analysts’ rankings for the close to time period.
They cite a number of constructive elements:
1. “We like their exposure to fuel (60% for WEX, 40% for FLT), as fuel prices have remained elevated, … and the demand environment remains firm.
2. “Both are profitable. We believe both companies have potential for EPS upside versus the consensus in the second and third quarter.
3. “Both companies have strong track records and have strong management teams.
4. “Both companies trade much closer to their trough multiples [than their peaks], …which indicates that both companies’ shares are oversold.”
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After Wex and Fleetcor, the analysts like fee service suppliers Fidelity National Information Services (FIS) – Get Fidelity National Information Services, Inc. Report, Fiserv (FISV) – Get Fiserv, Inc. Report and Global Payments (GPN) – Get Global Payments Inc. Report.
The analysts’ reasoning:
1. “We see more favorable risk/reward for all three companies compared to most other (higher-multiple) fintech names in our coverage.
2. “We think all three will continue to report positive earnings over the next couple quarters. An ongoing travel recovery should help in particular.
3. “All three generate significant cash. All have healthy balance sheets and merger & acquisition capacity. Certain parts of their businesses are highly durable and defensive. (i.e. FIS in banking).
4. “All three have management teams [with] strong operators who have demonstrated a strong ability to adapt through various economic cycles.
5. “Similar to WEX and FLT, all three companies are currently trading much closer to their trough [forward] P-E multiples … than their peaks.”
PayPal, Shopify Woes
The analysts are much less keen about e-commerce firm Shopify (SHOP) – Get Shopify, Inc. Class A Report and diversified monetary service firm PayPal (PYPL) – Get PayPal Holdings, Inc. Report.
“Given the broader slowdown in e-commerce and discretionary spending, SHOP’s low/no margin story is a bit problematic for investors in the near term,” they mentioned.
Meanwhile, “PYPL is still in the midst of a few company-specific near-term headwinds (management transition, lowering 2022 guidance and execution).”