The financial services industry has transformed significantly in the recent years. With digitalization taking center stage, technology is playing a major role. Digitalization of banking and payment services has made it easier for people to conduct transactions.
Meanwhile, coronavirus-led lockdowns have increased people’s dependency on online platforms and online transaction methods, which has turned out to be positive factor for the industry. With the market adopting a quantitative approach to save time, reduce operating expenses and increase work efficiency, companies in this industry should benefit. The Zacks Financial Transaction Services industry currently carries a Zacks Industry Rank #104, which places it in the top 41% of more than 250 Zacks industries and indicates solid near-term growth prospects.
Given this encouraging backdrop, it is not a bad idea to undertake a comparative analysis of two financial transaction services industry stocks — Equifax, Inc. EFX and Green Dot Corporation GDOT. Both the stocks are part of the broader Zacks Business Services sector (one of the 16 Zacks sectors). While market capitalization of Equifax is $20.34 billion, that of Green Dot is $2.45 billion.
As both the stocks carry a Zacks Rank #2 (Buy), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Equifax clearly scores over Green Dot in terms of price performance. Over the past year, shares of Equifax have gained 23.4%, outperforming 2.8% growth of the industry it belongs to. Green Dot has lost 1% in the said time frame.
Earnings Surprise History
Earnings surprise history helps investors to get an idea of the company’s performance in the previous quarters.
Both Equifax and Green Dot surpassed the Zacks Consensus Estimate in each of the previous four quarters.
However, Green Dot delivered a higher average positive earnings surprise of 247.6% compared with 4.2% for Equifax.
Earnings Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Over the past 60 days, the Zacks Consensus Estimate for Equifax’s current-quarter earnings has risen 47.7% versus a decrease of 16.2% for Green Dot. For full-year 2020, Equifax’s earnings estimates have improved 14.8% compared with an increase of 10% for Green Dot.
Based on quarterly and yearly earnings estimate revisions in the past 60 days, Equifax is better placed than Green Dot.
The price to earnings ratio (P/E) metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is considered better than a higher one.
The trailing 12-month price-to-earnings (P/E - TTM) multiple for Equifax and Green Dot is 28.9 and 24, respectively, while that of the industry is 29.6. Although both the companies compare favorably with the industry, Green Dot has an edge with a lower P/E - TTM value.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
Equifax and Green Dot have a TTM net margin of 7.5% and 7.3%, respectively. Though both the stocks compare unfavorably with the industry’s figure of 40.5%, Equifax has a lead over Green Dot.
Our comparative analysis shows that Equifax scores over Green Dot in terms of price performance, earnings estimate revisions and net margin. However, Green Dot enjoys an advantage in terms of earnings surprise history.
A faster share price rally over the past year has led to a rich valuation for Equifax compared with Green Dot.
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Equifax, Inc. (EFX) : Free Stock Analysis Report
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