The finance industry is poised for a sustainable expansion, owing to the integration of new immersive technologies, growing demand for alternative investments, and increasing demand for loans. Therefore, investors could consider buying fundamentally robust finance stocks Visa Inc. (V), Mastercard Incorporated (MA), and Broadridge Financial Solutions, Inc. (BR) to propel their portfolio forward now.
The financial services sector’s pivotal role fuels the economic engine, promising to sustain its resilience in all future scenarios. This steady growth is due to the expanding wealth of high-net-worth individuals (HNIs), a rising interest in alternative investment options, and an increase in homeownership and associated mortgage activities.
Meanwhile, consumer credit card debt has swelled, hitting an unprecedented level of $1.13 trillion at the end of last year. Simultaneously, credit card delinquencies saw an uptick as well. The percentage of card delinquencies extending for 90 days or more rose to 6.4% from 4% in the fourth quarter of 2022. This surge in card debt played its part in elevating the total household borrowing, which climbed to $17.5 trillion.
According to a recent Federal Reserve survey, U.S. banks expect an increase in demand for loans as interest rates fall in 2024, despite their tightening of credit standards on some types of loans. This should bode well for the financial services companies.
Fintech companies are applying generative AI in their operations, primarily through chatbots, where customers communicate with banking apps and online money services in natural language. The global fintech market is projected to reach $644.60 billion by 2029, growing at a CAGR of 25.2%.
Integration of new and immersive technologies like VR, AI, open banking, automation, cloud computing, and blockchain banking promises a more efficient and customer-centric financial services industry.
The global financial services market is projected to surpass $58.69 trillion by 2031, growing at a 9.7% CAGR.
Given the industry tailwinds, it's time to examine the fundamentals of the three stocks to buy in the Financial services industry.
Visa Inc. (V)
V operates as a payment technology company in the U.S. and internationally. The company provides digital payments and connects consumers, merchants, financial institutions, businesses, strategic partners, and government entities through technologies. The company operates through the payment services segment.
On March 5, V announced a seven-year agreement with Western Union. The agreement encompasses card issuance, Western Union’s integration with Visa Direct, and value-added services delivery, including risk products. The companies plan to issue Western Union/Visa Debit Cards across North America, Asia Pacific, Latin America, and Europe.
On February 22, V opened its transformed Singapore Innovation Center, a dedicated space for partners, clients and businesses in Asia Pacific. As the payments landscape evolves rapidly, the center enables stakeholders to engage with V technologists to co-create payment solutions ahead of demand, deliver scalable innovation, and address the most significant challenges and opportunities in digital payments in the region.
It pays an annual dividend of $2.08 per share, which translates to a dividend yield of 0.74% on the current share price. Its four-year average yield is 0.66%. V’s dividend payments have grown at CAGRs of 16.1% each over the past three and five years.
V’s trailing-12-month cash from operations of $20.20 billion is significantly higher than the industry average of $146.45 million. Its trailing-12-month ROCE and ROTC of 48.45% and 23.82% are 343.7% and 265.8% higher than the industry averages of 10.92% and 6.51%, respectively.
For the fiscal first quarter that ended December 31, 2023, V’s net revenues and operating income stood at $8.63 billion and $5.95 billion, up 8.8% and 17% year-over-year, respectively.
For the same quarter, its non-GAAP net income and non-GAAP earnings per share increased 7.8% and 10.6% from the year-ago quarter to $4.94 billion and $2.41, respectively.
Street expects V’s revenue and EPS for the fiscal second quarter ending March 2024 to increase 8.1% and 16.2% year-over-year to $8.63 billion and $2.43, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 23.7% over the past year to close the last trading session at $280.43. Over the past nine months, it has gained 22.9%.
V’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Momentum, Stability, and Sentiment. Within the B-rated Consumer Financial Services industry, it is ranked #7 out of 45 stocks.
To see additional POWR Ratings for Growth and Value for V, click here.
Mastercard Incorporated (MA)
MA provides transaction processing and other payment-related products and services in the U.S. and internationally. It connects consumers, financial institutions, merchants, governments and businesses across the world, enabling them to use electronic forms of payment.
On March 5, MA partnered with Uber and Payfare to launch the Uber Pro Card, which provides free instant payouts after every trip or delivery and enhanced loyalty features for drivers and delivery people on the Uber platform in Canada. Through this partnership, MA enabled app-based workers to scale their businesses by providing them with cash flow when needed most.
On February 28, MA and MTN Group Fintech signed a multi-market agreement that will set in motion a new era of collaboration to connect millions of people and small businesses across Africa with digital tools to transact through secure mobile payments, expanding access to the benefits of the cashless digital economy.
The partnership will use MA’s cutting-edge technology and capabilities to support MTN’s ambition to become Africa’s largest fintech platform for both merchants and consumers.
It pays an annual dividend of $2.64 per share, which translates to a dividend yield of 0.56% on the current share price. Its four-year average yield is 0.53%. MA’s dividend payments have grown at CAGRs of 13.1% and 17% over the past three and five years, respectively.
MA’s trailing-12-month cash from operations of $11.98 billion is significantly higher than the industry average of $146.45 million. Its trailing-12-month ROCE and ROTA of 169.27% and 26.37% are significantly higher than the industry averages of 10.92% and 1.09%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, MA’s net revenue and operating income stood at $6.55 billion and $3.37 billion, up 12.6% and 5.9% year-over-year, respectively.
For the same quarter, its adjusted net income and adjusted earnings per share increased 17.2% and 20% from the year-ago quarter to $2.99 billion and $3.18, respectively.
Street expects MA’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 10.3% and 15.5% year-over-year to $6.34 billion and $3.23, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 28.5% over the past year to close the last trading session at $471.60. Over the past nine months, it has gained 24.1%.
MA’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
MA has an A grade for Quality and a B for Momentum, Stability, and Sentiment. Within the Consumer Financial Services industry, it is ranked #4.
Beyond what we’ve stated above, we have also rated the stock for Growth and Value. Get all ratings of MA here.
Broadridge Financial Solutions, Inc. (BR)
BR provides investor communications and technology-driven solutions for the financial services industry. Its segments include Investor Communication Solutions (ICS) and Global Technology and Operations (GTO).
On March 3, CGS International Securities Pte. Ltd., a leading integrated financial services provider in Asia, implemented BR’s Securities Finance and Collateral Management platform to elevate its securities finance offering.
On February 16, BR’s Board of Directors declared a quarterly cash dividend of $0.80 per share, payable to stockholders on April 5. It pays an annual dividend of $3.20 per share, which translates to a dividend yield of 1.59% on the current share price. Its four-year average yield is 1.64%. BR’s dividend payments have grown at CAGRs of 11% and 12.4% over the past three and five years, respectively.
BR’s trailing-12-month cash from operations of $1.03 billion is 248.1% higher than the industry average of $296.61 million. Its trailing-12-month net income and levered FCF margins of 10.82% and 13.39% are 83.6% and 110.4% higher than the industry averages of 5.89% and 6.36%, respectively.
For the fiscal second quarter that ended December 31, 2023, BR’s revenues stood at $1.41 billion, up 8.7% year-over-year, while adjusted operating income increased marginally from the prior-year quarter to $174.50 million.
For the same quarter, its adjusted net earnings and adjusted earnings per share increased 1.1% each from the year-ago quarter to $109.60 million and $0.92, respectively.
Street expects BR’s revenue and EPS for the fiscal third quarter ending March 2024 to increase 7.4% and 9.3% year-over-year to $1.77 billion and $2.24, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 41.9% over the past year to close the last trading session at $203.02. Over the past nine months, it has gained 31.6%.
BR’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
BR has a B grade for Momentum and Sentiment. Within the Financial Services (Enterprise) industry, it is ranked #9 out of 99 stocks.
Click here for the additional POWR Ratings for BR (Growth, Value, Stability, and Quality).
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V shares rose $0.12 (+0.04%) in premarket trading Thursday. Year-to-date, V has gained 7.91%, versus a 7.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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