Payment Stocks to Gain From $2 Trillion Stimulus Package

On Friday, the House of Representatives passed the CARES Act, which is a $2-trillion legislative package aimed to aid the U.S. economy affected by the coronavirus outbreak. The legislation is particularly beneficial to small businesses, which are worst hit by the pandemic.

Since the small businesses form one of the most important customer segments of the payment companies like Visa Inc. V, Mastercard Incorporated MA, American Express Co. AXP, these should see an indirect gain.

 What’s in Store for Small Businesses?

The emergency relief package includes financial aid to help small businesses from the adversities of the pandemic. The recent COVID-19 outbreak forced several companies to close while many others are hanging by a thread. The bill will now assist them with an access to $350 billion in forgivable loans.

The small businesses, which work on minimal budgets, faced major disruptions over the last few days. In the week ended Mar 21, 2020, an alarming number of 3.28 million people filed for unemployment insurance, further reflecting the magnitude of wide-scale shutdown and joblessness.
Notably, these small businesses are the backbone of the economy, taking care of nearly half of the country's employment.

Various provisions in the Act are expected to rescue the struggling small businesses and their staff who were laid off on grounds of sheer necessity.
Business owners will be funded to keep the payroll flowing and cover other associated expenses such as rent, overhead, utilities, etc.

Above all, the money will encourage them to resume operations in the post-coronavirus scenario. The Fed also declared its intention to introduce a Main Street Lending Facility to loan directly to medium-sized businesses.

Payment Stocks Revises Guidance Downward

The coronavirus pandemic compelled a cut in travel and entertainment expenditure causing many of the leading payment stocks revise their respective outlooks.

Last week, management Mastercard gave a second revenue warning for the first quarter of 2020, suggesting that the top line will be impacted by the coronavirus pandemic. The company’s cross-border business took a hit due to a reduction in travel across the border. Mastercard now expects first-quarter net revenue growth in the low-single-digit range. Currency headwinds will drag the net revenue growth by about 2%. Mastercard also suspended its annual 2020 view owing to coronavirus-led volatility.

Notably, American Express observed softness in spending volumes in the last few days of February. Accordingly, the company now expects its first-quarter 2020 revenue growth in the range of 2-4% on an FX-adjusted basis and adjusted earnings per share in the $1.90-$2.10 band excluding reserve builds in the quarter.

Management at another leading company in the space, PayPal Holdings, Inc. PYPL, stated that its international cross-border e-commerce activity is hurt by COVID-19. It expects a 1% dip in its first-quarter 2020 revenues.

Visa, which has a solid international presence and a vast payment network, announced that the coronavirus outbreak is likely to impact its cross-border e-commerce growth. Management said that if cross-border business continues to show weakness through the end of the ongoing quarter, year-over-year net revenue growth in the second quarter will indicate a 2.5-3.5% decline from the company’s previous estimate provided in the first-quarter earnings conference.  

Measures to Grow in SMB Space

Companies like Visa and Mastercard took various measures over the years to penetrate the SMB space. In October 2019, Visa announced Visa Infinite Business, the expansion of its business card product suite in the United States, in support of the SMBs around the word. It was designed to cater to the requirements of high-spend SMBs with enhanced protection, travel and lifestyle as well as business-centric advantages.

Earlier this month, Visa entered into a partnership with Intuit QuickBooks, which allows Visa cardholders in India to subscribe to Intuit QuickBooks, letting SMBs collaborate with chartered accountants in real time.

Mastercard is also not lagging when it comes to exploring the SMB area.  Last year, it forged an alliance with Microsoft, which in turn, allowed its small business cardholders to gain access to a wide array of Mastercard enterprise solutions. The access to Microsoft 365 will enable small business owners to gain a suite of cloud services while Microsoft Advertising will allow them to gain target marketing services.

Conclusion

We thus believe that the lifeline provided to small businesses will aid the operations of these payments stocks. Also, the overall aid to the economy from the stimulus package will further boost consumer confidence, leading to higher spending and thus generating more businesses for the industry players.

Also consumer’s preferences to make online transactions and stay away from physical dealings as a preventive measure owing to social distancing will further spur an increase in transactions processed. Therefore, participants in this domain are poised to perform well.

Zacks Rank and Price Performance

Year to date, Mastercard, Visa and American Express have lost 17.1%, 14% and 28.7%, respectively, compared with the industry’s decrease of 17.5%. While Mastercard and Visa carry a Zacks Rank #3 (Hold), American Express has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

      
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