Let’s talk fintech. The word itself is a portmanteau, composed from financial technology. This is a sector that has risen in importance in recent years. Fintech underlies e-commerce, online banking, payment transfers, stock market analysis – the list is as endless as the combination of the financial markets and the digital world’s ingenuity.
According to the Global Fintech Adoption Index for 2019, the sector grew tremendously, from 16% in 2015 to 64% in 2019. The growth came at least in part as users and customers recognized fintech’s greater agility and convenience when compared to brick-and-mortar banks and retail – but in 2020, fintech came into its own. The pandemic – or more rightly, the lockdowns in response to it – did strangle much economic activity, but it would have been a lot worse if fintech companies hadn’t facilitated our move toward digital banking and commerce.
Now it’s well into 2021, and economies are reopening – but fintech remains firmly entrenched in our regular run of business. So let’s take a look at some fintech stocks, which have been getting some love from the Wall Street analysts. Looking at the TipRanks data, these are Buy-rated stocks, which according to some recent analyst reviews, boast upside that starts at 37% and heads north from there. Let’s see what else they have to offer.
Affirm Holdings (AFRM)
First on our list, Affirm Holdings, would tell you that sometimes, fintech means telling people, yes. The company operates a ‘loan via consumer app’ that allows quick purchases at any retailer. Affirm’s consumer loans are detailed up front, with the consumer knowing at the start how many payments will be needed and the exact payment schedule, and there are no late fees. Affirm has partnerships with Walmart and Shopify – showing the versatility of its model in both brick-and-mortar and online retail.
This company held its IPO early this year, in mid-January. The launch saw 24.6 million shares of AFRM issued on the NASDAQ, at $49 per share. That price was well above expectations; the Street had predicted the initial pricing between $41 and $44, while the company itself had initially planned to start the stock in the range of $33 to $38. The IPO, at the higher price, raised just over $1.2 billion capital.
In February, the company released its first quarterly results as a public entity. The release covered Q2 of fiscal 2021, the last before the IPO. Among the highlights in the report: $204 million in total revenue, up 57% year-over-year; $89.9 million in revenue less transaction costs, up 141% yoy; and 4.5 million active consumer users as of the end of calendar 2020, up 52% yoy. The company also reported a 7% increase in transactions per active consumer.
Despite the successful IPO and the gains in reported revenue, the company’s stock has been slipping since it peaked in mid-February. However, RBC’s Daniel Perlin thinks some serious growth is on the horizon.
“We believe Affirm is well positioned to capitalize on the secular growth of Buy Now Pay Later (BNPL) as a payment method at the POS,” the 5-star analyst wrote. “Broadly, BNPL is incremental to merchants & disruptive to alternative forms of payments. Given Affirm’s product offerings, we expect its financial model will support a 30% revenue CAGR over the next three years.”
In line with this bullish outlook, Perlin rates the stock as Outperform (i.e., a Buy), and his $155 price target implies a one-year upside potential of a hefty 169%. (To watch Perlin’s track record, click here.)
There are 10 analyst ratings on AFRM shares, and they break down 6 to 4 in favor of Buy versus Hold, giving the stock a Moderate Buy consensus rating. The average price target is $107.60, suggesting an upside of 87% from the current trading price of $57.60. (See Affirm’s stock analysis at TipRanks.)
PagSeguro Digital, Ltd. (PAGS)
Next up, PagSeguro, is part of Brazil’s Universo Online service, the country’s largest internet portal. It was founded originally as UOL’s online payment provider, and has since expanded to point-of-service payments. The company focuses on small entrepreneurs, micro-merchants, small- and mid-sized companies, and consumers in Brazil. Pag has in recent years been moving into digital banking for individual online accounts.
Pag showed mixed results in its last financial report, for 4Q20. Net earnings dropped due to an increase in total expenses. By the numbers, the company saw US$69.8 million in net income for the quarter, down 4.1% year-over-year. At the same time, net revenues were up, by 32.6% yoy, to US$388 million. The top line gains were driven by increases in payment volume and users; Pag reported a 61.2% yoy increase in payment volume, while active merchants on the platform rose from 6.3 million in Q3 to 7 million in Q4.
In April, Pag made a major move into the mobile world, with the launch of the PagPhone. This is an Android 10 powered smart device, combining functions of a smartphone, POS payment, and a digital bank. It is targeted at small entrepreneurs, who need mobility.
Deutsche Bank’s Bryan Keane sees a clear path for Pag, writing, “PAGS plans to move further up market and go after the fast-growing SMB opportunity expecting to reach ~250- 300 hubs and ~6-11% of total company volumes over the next year. PAGS guided to 40% volume growth in FY21, which we believe could prove conservative. Although incremental investments, stimulus, and moving upmarket could weigh on take rate and margins, PAGS should positively benefit from accelerated volumes…”
The 5-star analyst gives the stock a Buy rating, with a $75 price target to indicate a 71% growth potential for 2021. (To watch Keane’s track record, click here.)
PagSeguro is blessed with a unanimous Strong Buy consensus rating, based on 3 recent positive reviews. The stock has a share price of $43.07 and an average price target of $66.67, suggesting it has a one-year upside potential of 55%. (See PagSeguro’s stock analysis at TipRanks.)
Fiserv, Inc. (FISV)
Last but not least, we have Fiserv, a fintech company that aims at the service provider end of the market. Fiserv offers payment services, account and billing products, customer management, and online banking to credit unions, securities brokers, banks, and retailers. The company boasts 1.4 billion accounts globally, including 10,000 financial institutions, 6 million merchants, and 100 million digital banking users. Fiserv processes 12,000 financial transactions per second.
Late in April, Fiserv released its 1Q21 results, showing $3.76 billion in revenue, flat year-over-year. EPS, at 44 cents, was flat sequentially and down from the 57 cents reported one year earlier. Year-over-year, cash flow was up; operating cash flow grew 7% to $952 million, while free cash flow grew 8% to $821 million.
The earnings release included notice of two expansion agreements. In March, Fiserv made moves to acquire Pineapple Payments, a merger that is expected to close during Q2. In April, Fiserv entered into a 20-year partnership agreement with Brazil’s Caixa Economical Federal, one of that country’s largest banks. The agreement gives Fiserv an opening into the large and growing Latin American market.
In his note on Fiserv’s stock, Mizuho analyst Dan Dolev acknowledges the company’s mixed data from the earnings report – but writes, “We believe the positives far outweigh the concerns. Oddly, the cherry on top of the cake did not garner enough attention in our view. The 20-year agreement with Caixa — one of Brazil’s largest banks — should be a top 10 relationship for FISV, adding north of 100bps to merchant growth over time… With Clover GPV accelerating to 36% in 1Q, North America seeing low-double-digit internal growth, ISVs growing 34% and global e-commerce transactions up 24%, we believe FISV is simply executing better than many of its peers.”
Dolev rates the stock as a Buy, and his $160 price target suggests it has 37% growth ahead in 2021. (To watch Dolev’s track record, click here.)
That Wall Street generally agrees with Dolev’s assessment is clear from the Strong Buy consensus rating, derived from 16 recent reviews that include 14 Buys and just 2 Holds. The stock’s share price is $116.59 and its average target of $140.15 implies a 20% upside from that level. (See Fiserv’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.