Credit Suisse Is Bullish On Payment Processors, Notes 'People Will Not Stop Buying Things'

Paul Condra of Credit Suisse initiated coverage of companies involved in payments and fintech, noting that the industry's fee-per-transaction model "benefits from massive volumes" and transactions on a fixed-cost processing base.

According to Condra, there were a total of 357 billion global non-cash transactions in 2014. In 2013, the total global payment card volume corresponded to $16.3 trillion. The analyst noted that this makes the payments space attractive because simply enough, "people will not stop buying things" – especially as consumers continue turning more toward online shopping.

In order to satisfy the growing demand for payments and fintech, providers are rushing to provide the consumer base with a compelling and unique proposition. Naturally, this implies that investors can find attractive opportunities in the growing space.

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Top Ideas

Here is a summary of Condra's top-Outperform rated U.S. picks.

WEX Inc (NYSE: WEX) has an attractive exposure of 35 percent to a high growth business, corporate payments. The analyst suggested that the company could see margin expansion in 2016 from pricing initiatives, benefits from recent M&A activity and a profitable European business.

Blackhawk Network Holdings Inc (NASDAQ: HAWK) is a prepaid payment network that offers gift, telecom and debit cards. According to Condra, the company is expected to sustain mid-teens earnings per share growth given its "strong" competitive moat. The stock also offers a "relative value for growth" of 16x 2017PE and should also expand its margins over the longer term.

Global Payments Inc (NYSE: GPN) provides payment and digital commerce solutions. The company is benefiting from "strong fundamental trends," especially in tech-enabled processor channels. In addition, the company offers a diversified portfolio across online/integrated/international channels. The analyst added that investors could also own a basket of Global Payments' peers to diversify risk while gaining the exposure to the strong growth trends.

Heartland Payment Systems, Inc. (NYSE: HPY) provides card payment processing services to merchants. The analyst noted that the company has a differentiated direct sales model with a niche focus on education/restaurants. Similar to Global Payments, investors should consider owning a basket of peers.

Vantiv Inc (NYSE: VNTV) operates two segments, and offers payment processing services and card processing services. The analyst stated the company operates a "high quality" integrated/online payments assets that works with large merchants.

Finally, Paypal Holdings Inc (NASDAQ: PYPL) offers investors the "highest exposure" to the fastest growing segment of payments in online and mobile. The analyst noted that the stock will become "more investable" after a couple "sold quarters" laps.

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