Payment processing might seem like a subtlety in the context of modern business yet it is quite a lucrative industry. Payment processing businesses facilitate the exchange of currency both on and offline. Now that the economy is reopening, payment processing stocks could receive a considerable boost as people return to work and loosen their purse strings.

There is plenty of pent-up demand for products and services of all types, meaning that many more transactions will be processed during the reopening.  PayPal (PYPL),  Fiserv (FISV), Square (SQ), and WEX (WEX) and are four payment processing stocks worth a close look as we transition back to normal.

PayPal (PYPL - Get Rating)

Most people have used payment processing services such as PayPal yet never spent much time looking into how these companies make money. PYPL does a little bit of everything to bolster its bottom line. The company has a small business loan program, makes money from direct payments and provides value-added services. Furthermore, PayPal owns Venmo, another payment processing service.

The POWR Ratings have PYPL rated as an “A” in both its Trade Grade and Buy & Hold Grade. At the moment, PYPL is about $30 below the analysts’ high target for the stock of $183.

PYPL’s Venmo service that facilitates person-to-person payments will continue to prove quite popular as money is transmitted in a digital manner throughout the coming months. Though some will choose to spend tangible dollars at traditional stores, a potential second wave of the virus will steer plenty of people back toward the web.

There is also a chance some businesses will close in the event that customers are hesitant to shop at brick-and-mortar facilities. If such traditional businesses close or pivot online, PYPL will benefit with a spike in online payments.

Fiserv (FISV - Get Rating)

Investors looking to put their money in a transaction processing company with additional revenue streams should consider FISV. FISV makes money from payment processing as well as software/systems solutions, document distribution and process outsourcing.

This Brookfield, WI business has more than 12,000 clients across nearly half a dozen industries. With an average analyst price target of $121, FISV has more than 20% upside.

The POWR Ratings have FISV ranked in the top 25% of all Financial Services stocks, highlighted by a strong B Trade Grade. FISV stands a good chance of returning to its 52-week high of $125.05 as economic activity resumes and more business is conducted through the company’s point-of-sale terminals operated by one of its subsidiaries dubbed Clover.

Square (SQ - Get Rating)

Digital payments are on the rise as a result of the pandemic. Businesses need specialized hardware and software to process these transactions. SQ provides these tools for payment processing, tracking and analysis. Though SQ has only been in business since ’15, its point-of-sale (POS) services are clearly in demand. Furthermore, the company provides in-person payment solutions to boot.

The POWR Ratings have SQ rated as a Buy with a Financial Services (Enterprise) segment rank of #11 out of134 stocks. SQ has an A Trade Grade and an A Peer Grade.

At the moment, SQ is trading a mere $2 below its 52-week high of $92.97. Take a look at SQ’s price returns and you will be more than impressed. SQ has a three-month price return of 102.55%, a one-year price return of 26.55% and a three-year price return of 284.55%. Look for SQ to move toward the analysts’ high forecast of $95 before the end of the third-quarter.

WEX (WEX - Get Rating)

The travel, fleet and healthcare sectors are bound to experience a boost as the economy reopens. WEX is the top payment processing service for these sectors. The POWR Ratings have WEX ranked #3 of nine stocks in the foreign consumer finance space.

WEX has a three-year price return of 52.48% and a five-year price return of 38.65%. The stock has a high target of $190, meaning there is significant upside. Though WEX is still trading below its pre-covid level of $234, the company has five-year earnings growth just under 10%. Look for WEX to move back toward its pre-covid trading range of $200 to $230 as the year rounds out.

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PYPL shares rose $0.51 (+0.32%) in after-hours trading Monday. Year-to-date, PYPL has gained 45.65%, versus a -4.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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