Rush for E-Commerce Sales Puts Payment Stocks in the Forefront

Shelter-in-place restrictions, social-distancing measures and other restraints from physical contact as preventive measures to shield people from the COVID-19 infection drove incredible growth for online or e-commerce shopping.

Since e-commerce requires payment via cards/mobile/internet, companies engaged in processing payments through such modes will be the beneficiaries of this trend.

Recovery in Sales

According to Mastercard SpendingPulse, which tracks overall retail sales across all payment types including cash and checks, U.S. total retail sales for May saw a spike over April-levels.  Retail sales (ex auto) for the period declined 5.6% year over year, reflecting a marked improvement from the 14.1% decrease in the previous month.

The rise in retail sales can be attributed to reopening of states and the national government’s largesse in the form of Economic Impact Payments (EIP).

The Treasury-sponsored EIP Card is a method to distribute money efficiently and securely to eligible recipients and their families. The EIP Card contains the money received by Americans as a result of the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The EIP Card is sponsored by the Treasury Department’s Bureau of the Fiscal Service as part of the US Debit Card Program.

More than 140 million of Economic Impact Payments worth $239 billion is already dispensed to Americans through direct bank deposits, Direct Express card accounts and also via checks. These EIP cards can be used for shopping in places where Visa Debit Cards are accepted: in-store, online or over the phone including bill payments.

E-Commerce Sales Grab a Bigger Slice of the Pie in April-May

Going by Mastercard SpendingPulse findings, U.S. e-commerce sales surged 92.7% in May, mirroring the sales shift to digital channels, dictated by daily lifestyle changes.

E-commerce  sale doubled year over year. In April-May, e-commerce made up 22% of the total retail sales compared with 11% in the year-ago period. Back to back, both months saw higher online spending than the last 12 Cyber Mondays combined.

In April-May, more than $53 billion of incremental spending (year over year) was recorded on e-commerce channels in the United States.
The work-from-home and stay-at-home routine triggered the need for nesting, which perked up hardware and furniture sales,  up 36.2% and 7.5% each year over year across online and in bricks-and-mortar stores during May.

In these unprecedented challenging times, though demand for other discretionary spending took a huge hit, the same for essentials like groceries stayed at elevated levels. Sales in this category rose 9.2% year over year in May across online and in-store. This is the strongest grocery sales volume recorded for the month in SpendingPulse history.

Trend Not Limited to United States

Per the Mastercard Spending Pulse, there has been some sales transformation from bricks-and-mortar outlets to online channels after the onset of the COVID-19 pandemic. In April and May, e-commerce in terms of its share of total retail sales (ex. auto, petrol and restaurants) reached 33% in the U.K., touching an astonishing level.

Digital Sales to Sustain in the Post COVID-19 World

The rampant digital shift is likely to last longer than expected even in the post COVID-19 era, given the convenience, flexibility, security and speed offered by these new-age payment methods. Moreover, millennials are more open to adopt new technologies, which should boost the usage of digital payment system.

Below we enlist a few companies in the payment space, which hold a niche position in the evolving payments space and should be kept on investors’ watchlist.

Mastercard Inc. MA is experiencing a revival in business volumes, aided by normalization in some markets owing 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 traction gained from the fiscal stimulus offered in the United States. Mastercard 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, poised to benefit from a resurgence in spending. Its cards used for flight ticket booking and providing premium lounge facilities are expected to gain traction once the travel spending sees 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 vouching for 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 same 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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