Payments Earnings Preview: Square, Global Payments, Worldpay Are 'High-Conviction' Names

Shares of payment processors have underperformed the S&P 500 Index in the quarter-to-date period, creating an attractive buying opportunity, according to an analyst at KeyBanc Capital Markets.

The Analyst

Josh Beck has Overweight ratings on the following stocks:

• Square Inc SQ - $115 price target
• Global Payments Inc GPN - $130
• Worldpay Inc WP - $120
• Adyen NV ADYYF – 750 euros
• i3 Verticals Inc IIIV – Price target raised to $22
• Mastercard Inc MA - $230
• Visa Inc V - $160
• Total System Services, Inc. TSS -$100
• Paypal Holdings Inc PYPL - $105
• PagSeguro Digital Ltd PAGS - $42
• First Data Corp FDC - $28

Among these, the analyst has a positive view on Adyen, Global Markets, i3 Verticals, Square and Worldpay, and he named these stocks as his high-conviction names.

The Thesis

"Sustained digital payments' secular strength, a favourable consumer backdrop, and FX choppiness" are likely to characterize the third quarter earnings of payment processors, Beck said in an Oct. 14 note. The analyst sees the 1 percent year-over-year acceleration in early payment volume as encouraging.

The positive view on Adyen, Global Payments, Square and Worldpay is premised on multi-year fundamental outlook, stemming from increased software and/or e-commerce exposure that are likely to lead estimates higher and result in multiple expansion.

However, Beck expects Latin American forex headwinds to impact First Data, mitigating the positive impact of sustained strength at North America Global Business Solutions.

Despite expecting a solid beat from PagSeguro, Beck said a lack of guidance could weigh on sentiment.

At PayPal, the analyst expects investment in scaling Venmo and iZettle and the freeing up of balance sheet with Synchrony Financial SYF to create some near-term noise.

The firm expects broad-based strength for Visa and Mastercard, but sees incremental investments toward innovation and incremental forex headwind.

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