Although inflation came below analyst estimates last month, the Federal Reserve will likely announce a 25-basis point interest rate increase at the next FOMC meeting. Interest rate increases are beneficial for the financial sector as it helps them raise their profit margins.
Amid macroeconomic uncertainties, investors must assess securities' Stability, Quality, and Sentiment aspects before investing in them. As Moody's Corporation (MCO), FLEETCOR Technologies, Inc. (FLT), and EVERTEC, Inc. (EVTC) scores high on these aspects and are rated Buy in our proprietary POWR Ratings system, it could be wise to buy these stocks now.
Stability is a crucial component to consider, as a stock with greater stability is not affected by the ups and downs of the market. On the other hand, quality helps measure how profitable the company is compared to its peers. Sentiment helps investors determine what analysts and smart money think about the stock.
Before diving deeper into the fundamentals of these stocks to see how they score on the stability, quality, and sentiment fronts, let’s discuss what’s shaping the industry's prospects.
In addition to benefiting from the high-interest rate environment, financial stocks will likely perform well in the long term, thanks to the rising demand for digital financial services like wealth management, online banking, digital payments, and consumer credit.
Financial services companies leverage technologies like artificial intelligence (AI), blockchain, etc., making digital transactions more seamless. The global financial services market is expected to grow at a CAGR of 7.5% to reach $37.48 trillion by 2027.
Let’s take a closer look at the factors that make these stocks worth buying.
Moody's Corporation (MCO)
MCO operates as an integrated risk assessment firm worldwide. It operates in two segments, Moody’s Investors Service and Moody’s Analytics. Moody’s Investors Service segment publishes credit ratings and provides assessment services. Its Analytics segment develops a range of products and services that support risk management activities of institutional participants in financial markets and offers subscription-based research. It has a 1.30 beta.
On June 29, 2023, MCO and Microsoft Corporation (MSFT) announced a new strategic partnership to deliver next-generation data, analytics, research, collaboration, and risk solutions for financial services and global knowledge workers. MCO’s President and CEO Rob Fauber said, “Generative AI represents a once-in-a-generation opportunity to enhance how companies navigate the ever-evolving world of exponential risk.”
“By combining Microsoft’s cutting-edge AI capabilities with our proprietary data, research, and analytics, Moody’s is positioned to lead the next generation of risk analysis, helping our customers make better decisions by unlocking deeper, more integrated, and unmatched perspectives on risk,” he added.
In terms of the trailing-12-month gross profit margin, MCO’s 70.01% is 18.9% higher than the 58.91% industry average. Likewise, its 41.69% trailing-12-month EBITDA margin is 102.1% higher than the industry average of 20.63%. Furthermore, the stock’s 5.48% trailing-12-month Capex/Sales is 184.7% higher than the industry average of 1.93%.
MCO’s revenue for the first quarter ended March 31, 2023, came in at $1.47 billion. Its free cash flow increased 30.2% year-over-year to $535 million. The company’s adjusted net income rose 2.4% over the prior-year quarter to $550 million. Also, its adjusted EPS came in at $2.99, representing an increase of 3.5% year-over-year.
Analysts expect MCO’s revenue for the quarter ended June 30, 2023, is expected to increase 5.1% year-over-year to $1.45 billion. Its EPS for the quarter ending September 30, 2023, is expected to increase 24.8% year-over-year to $2.31. Over the past nine months, the stock has gained 47.8% to close the last trading session at $357.78.
MCO’s POWR Ratings reflect this positive outlook. MCO has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Quality. It is ranked #12 out of 100 stocks in the Financial Services (Enterprise) industry. Click here to see the other ratings of MCO for Growth, Value, Momentum, and Stability.
FLEETCOR Technologies, Inc. (FLT)
FLT is a business payments company that helps businesses spend less by enabling them to manage their expense-related purchasing and vendor payments processes. It offers corporate payment solutions, such as accounts payable automation; Virtual Card; Cross-Border; purchasing cards, and travel and entertainment cards for customers to analyze and manage their corporate spending. It has a 1.22 beta.
On February 1, 2023, FLT announced the acquisition of a cloud-based EV charging software platform, Mina. The acquisition provides FLT, the United Kingdom’s only EV re-charging solution that captures, calculates, and pays for at-home business-use charging directly with the energy provider.
In terms of the trailing-12-month gross profit margin, FLT’s 77.52% is 31.6% higher than the 58.91% industry average. Likewise, its 42.50% trailing-12-month EBIT margin is 108% higher than the industry average of 20.44%. Furthermore, the stock’s 4.43% trailing-12-month Capex/Sales is 130% higher than the industry average of 1.93%.
For the fiscal first quarter ended March 31, 2023, FLT’s net revenues rose 14% year-over-year to $901.33 million. Its operating income increased 18% over the prior-year quarter to $375.20 million. The company’s net cash provided by operating activities came in at $327.67 million, compared to net cash used in operating activities of $112.25 million in the year-ago period.
Its adjusted net income came in at $283.08 million. Also, its adjusted EPS came in at $3.80, representing an increase of 4.1% year-over-year.
For the quarter ended June 30, 2023, FLT’s EPS and revenue are expected to increase 0.2% and 9.7% year-over-year to $4.18 and $944.99 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 48.1% to close the last trading session at $252.44.
FLT’s POWR Ratings reflect solid prospects. It has an overall rating of B, translating to Buy in our proprietary rating system.
Within the Financial Services (Enterprise) industry, it is ranked #8. It has a B grade for Quality. To see the other ratings of FLT for Growth, Value, Momentum, Stability, and Sentiment, click here.
EVERTEC, Inc. (EVTC)
Headquartered in San Juan, Puerto Rico, EVTC engages in transaction processing business in Latin America and the Caribbean. The company operates through Payment Services – Puerto Rico & Caribbean; Payment Services – Latin America; Merchant Acquiring; and Business Solutions segments. It has a 0.95 beta.
In terms of the trailing-12-month net income margin, EVTC’s 36.65% is 42.1% higher than the 25.80% industry average. Likewise, its 24.77% trailing-12-month EBIT margin is 21.2% higher than the industry average of 20.44%. Furthermore, the stock’s 0.55x trailing-12-month asset turnover ratio is 167.2% higher than the industry average of 0.20x.
EVTC’s revenues for the fiscal first quarter ended March 31, 2023, increased 6.4% year-over-year to $159.81 million. Its adjusted EBITDA came in at $67.14 million. The company’s adjusted net income came in at $45.59 million. Also, its adjusted EPS came in at $0.69, representing an increase of 4.5% year-over-year.
Street expects EVTC’s EPS and revenue for the quarter ended June 30, 2023, to increase 2.5% and 2.5% year-over-year to $0.67 and $164.51 million, respectively. The stock has gained 27.8% year-to-date to close the last trading session at $41.37.
EVTC’s POWR Ratings reflect this positive outlook. It has an overall rating of B, translating to Buy in our proprietary rating system.
It is ranked #10 in the Financial Services (Enterprise) industry. It has a B grade for Stability and Sentiment. Click here to see the other ratings of EVTC for Growth, Value, Momentum, and Quality.
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MCO shares were unchanged in premarket trading Monday. Year-to-date, MCO has gained 29.07%, versus a 19.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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