The Federal Reserve has raised the benchmark interest rates eight times since last year to control inflation, with the most recent being a quarter of a percentage point hike, bringing the benchmark rate to a new range of 4.5% and 4.75%, the highest level since October 2007.
While most industries suffer from a rising interest rate environment with surging borrowing costs affecting their profitability, financial companies, which include banks and insurers, usually benefit from it as it helps them expand their top line. Higher interest rates typically lead to a rise in the net interest income of financial companies.
With inflation inching up sequentially, alongside the hotter-than-expected jobs data in January, the Fed might be forced to increase the benchmark interest higher than its previous prediction. This could be beneficial for financial services stocks.
The financial services industry is expected to grow at a CAGR of 7.5% to reach $37.48 trillion by 2027. Investors’ interest in financial stocks is evident from the iShares U.S. Financial Services ETF’s (IYG) 11.2% returns over the past nine months.
Therefore, it could be wise to add fundamentally strong financial stocks Everi Holdings Inc. (EVRI) and CPI Card Group Inc. (PMTS) to your portfolio. On the other hand, it could be wise to avoid Digital World Acquisition Corp. (DWAC) due to its weak fundamentals and poor growth prospects.
Stocks to Buy:
Everi Holdings Inc. (EVRI)
EVRI is a creative entertainment and technology solutions provider for the casino and digital gaming industry. The company operates through two segments: Games and Financial Technology Solutions (Fintech). The latter provides gaming operators with financial technology products and services.
On October 4, 2022, EVRI announced that it would expand its addressable market beyond the casino gaming industry and broaden its range of mobile capabilities for its gaming customers by acquiring certain strategic assets of Venuetize, Inc.
In terms of the trailing-12-month net income margin, EVRI’s 24.14% is 403.5% higher than the 4.80% industry average. Likewise, its 44.95% trailing-12-month EBITDA margin is 305.3% higher than the industry average of 11.09%. Furthermore, the stock’s 16.32% trailing-12-month Capex/Sales is 415.6% higher than the industry average of 3.17%.
EVRI’s President and CEO Randy Taylor said, “The complementary assets and established customer base of Venuetize being acquired together with our existing financial access and loyalty products are expected to enable further growth into additional entertainment, sports, and hospitality venues and also to create new crossover marketing opportunities with our existing customers.”
EVRI’s total revenues increased 21.4% year-over-year to $204.32 million for the third quarter ended September 30, 2022. Its adjusted EBITDA increased 6.7% year-over-year to $96.64 million. The company’s net income rose 336% from the prior-year period to $29.41 million. In addition, its EPS came in at $0.30, representing an increase of 328.6% year-over-year.
Analysts expect EVRI’s revenue for the quarter ended December 31, 2022, to increase 9.5% year-over-year to $197.55 million. It has surpassed Street EPS estimates in three of the trailing four quarters. The stock has gained 31.5% year-to-date to close the last trading session at $18.87.
EVRI’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 106 stocks in the Financial Services (Enterprises) industry. It has a B grade for Value and Quality. Click here to see the other ratings of EVRI for Growth, Momentum, Stability, and Sentiment.
CPI Card Group Inc. (PMTS)
PMTS is a payment technology company that provides comprehensive financial payment card solutions. The company segments are Debit and Credit and Prepaid Debit. It also provides services, such as card data personalization and fulfillment and tamper-evident secure packaging products and services.
In terms of the trailing-12-month net income margin, PMTS’s 5.59% is 87.9% higher than the 2.98% industry average. Likewise, its 18.12% trailing-12-month EBITDA margin is 61.5% higher than the industry average of 11.22%. Furthermore, the stock’s 4.45% trailing-12-month Capex/Sales is 78% higher than the industry average of 2.50%.
For the fiscal third quarter ended September 30, 2022, PMTS’ total net sales increased 25.1% year-over-year to $124.58 million. Its adjusted EBITDA increased 34.3% year-over-year to $28.27 million. The company’s net income increased 79.7% from the prior-year period to $11.91 million. In addition, its EPS came in at $1.01, rising 80.4% year-over-year.
For the quarter ended December 31, 2022, PMTS’ EPS and revenue are expected to increase 516.7% and 10.8% year-over-year to $0.37 and $103.30 million, respectively. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 145.8% to close the last trading session at $34.85.
PMTS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
It has a B grade for Growth and Sentiment. It is ranked #5 in the same industry. To see the other ratings of PMTS for Value, Momentum, Stability, and Quality, click here.
Stock to Avoid:
Digital World Acquisition Corp. (DWAC)
DWAC is a blank check company that was formed to acquire, engage in a share exchange, share reconstruction, and amalgamation with, purchase all or substantially all of the assets of, enter into contractual arrangements with, or engage in any other similar business combination with one or more businesses or entities.
DWAC’s net loss for the third quarter ended September 30, 2022, widened significantly to $3.79 million. Its net loss per Class A share widened 900% from the prior-year period to $0.10.
Over the past year, the stock has declined 82.2% to close the last trading session at $15.13.
DWAC’s weak prospects are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Growth and a D for Value, Stability, and Sentiment. Within the Financial Services (Enterprise) industry, it is ranked #103. Click here to see the other ratings of DWAC for Momentum and Quality.
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EVRI shares were trading at $19.02 per share on Friday afternoon, up $0.15 (+0.79%). Year-to-date, EVRI has gained 32.54%, versus a 5.83% 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 to Add to Your Portfolio in 2023 and 1 to Remove StockNews.com
