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How Payment Processors Are Performing amid Challenges in 2016

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Dec. 4 2020, Updated 10:52 a.m. ET

Changing dynamics

Payment processors (XLK) are seeing major changes in 2016. These changes include the following:

  • increased competition on pricing
  • adoption of new technologies such as wearables
  • payments linked through mobile devices

American Express (AXP) is still deploying resources for a stronger comeback against major peers Visa (V) and MasterCard (MA), who have garnered partnerships mainly driven by cost competitiveness.

AXP’s stock rose by 15% in the last quarter on better-than-expected operating performance. The company reported 1Q16 EPS (earnings per share) of $1.45, beating Wall Street analysts’ consensus estimate of $1.35. Visa and MasterCard have risen by 6% and 8%, respectively, during the same period.

Berkshire Hathaway’s Warren Buffett, the largest shareholder in American Express, is confident of the company’s long-term prospects.

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Earnings estimates

Visa is expected to post strong earnings growth in fiscal 2016. Its EPS are expected to be $2.77. For fiscal 3Q16, Visa is expected to post EPS of $0.67 compared to $0.74 in fiscal 3Q15.

American Express is expected to report EPS of $1.93 in its June quarter and $1.10 in its September quarter. This reflects its improved performance in landing new partnerships.

MasterCard is expected to report EPS of $0.90 in its June quarter. For 2016, it’s expected to report EPS of $3.54.

Discover Financial Services (DFS) is expected to post EPS of $1.42 in its June quarter and $1.49 in its September quarter. For 2016, it’s expected to post EPS of $5.69, reflecting a 9% rise on a year-over-year basis.

In the next part of the series, we’ll take a broad look at the payment-processing industry and why it’s booming.

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