With 40-year high inflation rates, continuing supply chain disruptions, and a strong labor market, the Federal Reserve is expected to hike interest rates multiple times this year. The first interest rate increase is expected to come in March. This bodes well for financial institutions, which should benefit from higher interest rates.
Investors’ interest in the financial sector is evidenced by the SPDR Select Sector Fund - Financial’s (XLF) 16.5% returns over the past year. In addition, according to a Globe Newswire report, the global financial services market is expected to grow at a 6% CAGR through 2025.
The shares of fundamentally strong financial stocks Donnelley Financial Solutions, Inc. (DFIN) and CPI Card Group Inc. (PMTS) have declined more than 25% in price year-to-date during the recent correction. But with the Fed’s planned rate hikes this year, we think it could be wise to add them to one’s watchlist.
Donnelley Financial Solutions, Inc. (DFIN)
DFIN in Chicago is a global risk and compliance solutions company. It provides regulatory filing and delivers solutions through its software, technology-enabled services, and print and distribution solutions to public and private companies, mutual funds, and others. Its segments include Capital Markets-Software Solutions, Capital Markets-Compliance and Communications Management, Investment Companies-Software Solutions, and Investment Companies-Compliance and Communications Management.
On Dec. 13, 2021, DFIN announced the acquisition of Guardum, a data security and privacy software provider that helps companies locate, secure, and control data. The acquisitions strengthen DFIN’s software solutions portfolio by making data security a competitive differentiator, enhancing regulatory compliance, safeguarding privacy, and improving data accuracy.
DFIN’s net sales increased 10.7% year-over-year to $232.80 million for the fourth quarter, ended Dec. 31, 2021. The company’s non-GAAP net earnings came in at $37.70 million, representing a 216.8% increase year-over-year. In addition, its adjusted EBITDA increased 75.6% year-over-year to $61.30 million.
Analysts expect DFIN’s EPS for the quarter ending March 31, 2022, to increase 3.2% year-over-year to $221.18 million. Its revenue for its fiscal year 2023 is expected to increase 1.7% year-over-year to $920.07 million. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has declined 33.1% year-to-date to close the last trading session at $31.52.
DFIN’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and Value and a B grade for Quality. It is ranked #5 of 113 stocks in the Financial Services (Enterprise) industry. Click here to see the other ratings of DFIN for Momentum, Stability, and Sentiment.
Note that DFIN is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
CPI Card Group Inc. (PMTS)
PMTS is a payment technology company that provides comprehensive financial payment card solutions. The Littleton, Colo.-based company’s segments are Debit and Credit and Prepaid Debit. It also provides services that include card data personalization and fulfillment and tamper-evident secure packaging products and services.
For the third quarter, ended Sept. 30, 2021, PMTS net sales increased 20.4% year-over-year to $99.60 million. The company’s adjusted EBITDA increased 22.7% year-over-year to $21.47 million. Also, its net income increased 14% year-over-year to $6.62 million.
For the quarter ending March 31, 2022, PMTS’ EPS is expected to increase 265.4% year-over-year to $0.43. Its revenue for fiscal 2021 is expected to increase 20.5% year-over-year to $376.30 million. The stock has declined 28.8% in price year-to-date to close the last trading session at $13.20.
PMTS’ POWR Ratings reflect solid prospects. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #3 in the Financial Services (Enterprise) industry. To see the other ratings of PMTS for Growth, Momentum, and Stability, click here.
DFIN shares were trading at $31.73 per share on Thursday morning, up $0.21 (+0.67%). Year-to-date, DFIN has declined -32.69%, versus a -12.01% 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.
2 Financial Stocks Down More Than 25% YTD to Add to Your Watchlist StockNews.com
