Record Gain in Retail Sales Puts Payment Stocks in Focus

Retail sales for May 2020 achieved better-than-expected results, indicating an upbeat consumer confidence in the United States after a prolonged lull, thanks to the COVID-19-induced shelter-in-place restrictions and social distancing. Shoppers are again flocking to malls after staying put for a couple of months.

A spike in retail sales bodes well for companies in the payment space, such as those processing payments via contactless platforms like smart phones, mobile, credit and debit cards.

Retail Sales Soar

Per Commerce Department data released on Tuesday, retail and food services sales for May rose 17.7% to $485.5 billion from April reading. The same also surpassed the 8% consensus estimate from Refinitiv, which marked the highest monthly gain in data since 1992.

Retail sales, however, were down 6.1% year over year. Total sales for the March-May period declined 10.5% from the same period last year.

Clothing and accessories saw the biggest jump in sales, skyrocketing 188% while Furniture and home furnishing stores, and sporting goods, hobby, musical instrument and book stores saw a respective surge of 89.7% and 88.2%.

The spurt in retail sales is likely to have been driven by a government benevolence of additional $600 per week in unemployment benefit.

Contactless Payments Gain Momentum

Increase in retail sales fuelled the use of cards and mobile payments in recent years owing to convenience, ease, flexibility, speed and security. Moreover, the continued pandemic crisis enhanced the use of contactless payments as physical modes of remittances heighten the risk of coronavirus infection.

According to a new Crowdfund Insider research, in May, 50% of U.S. consumers reportedly availed of contactless payment methods at least four times with 69% agreeing that this mode is more convenient than cash transactions. Also, three-fifth of U.S. consumers confirmed that these hassle-free digital payments will urge them to continue with the process even in the post-COVID world.

Even though the United States still lags in respect of adopting cashless payments, the country is catching up fast in that direction. In 2018, just 3% of the cards used was contactless in the country compared to around 64% in the U.K. and at least 96% in South Korea, going by a study, conducted by the global management consulting firm A.T. Kearney. However, the coronavirus pandemic will act as a catalyst for this shift.

Visa payWave, MasterCard PayPass™, Apple Pay from Apple Inc. AAPL, Samsung Pay and Android Pay are just some of the novel ways to make disbursements, relying on the power of contactless payments via a chip-enabled card or an activated mobile phone and near-field communication (NFC) technology.

Stocks in Focus

We zero in on some of the leading companies in the payments space that are poised to gain from the long-term transition to the payment industry.

Mastercard Inc. MA is experiencing a revival in business volumes, driven by normalization in select markets, attributable to gradual reopening of businesses. The company’s switched volume and switched transactions are showing an enhanced trend, partly backed by the easing of social-distancing measures in several markets and the positive impact drawn from the fiscal stimulus offered in the United States. The company is also witnessing buoyant demand for its Data & Analytics and Cyber solutions. In the second quarter of 2020, the company expects services growth that provides diversification to its revenue stream to continue outperforming its core products.

The stock currently has a Zacks Rank #3 (Hold) and its bottom line beat estimates in each of the trailing four quarters, the average being 5.51%.

American Express Co. AXP is another major company in the card space, which is likely to benefit as spending catches everyone’s fancy yet again. Its cards used for flight-ticket booking and providing premium lounge facilities are expected to gain traction from travel spending once it observes a boom.

The stock is currently Zacks #3 Ranked and its earnings topped estimates in all the trailing four quarters, the average being 5.03%.
 
Visa Inc. V is poised to cash in on the growing payments space, given its vast international reach, superior brand value, solid capital position and heavy investments in technology. The company recently reported monthly payments, processed transactions and cross-border volumes for May, reflecting a gradual betterment in card metrics trends.

The stock currently carries a Zacks Rank of 3 and its earnings surpassed estimates in three of the last four quarters and met the mark in one, the average positive surprise being 2.19%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy)  stocks here.

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