Why Square, PayPal Are Top Picks In The Fintech Space Ahead Of Earnings

Ahead of earnings from payment processing companies, an analyst at Rosenblatt Securities picked his five favorite names in the space.

The Ratings:Analyst Sean Horgan maintained a Buy rating on PayPal Holdings, Inc. and increased the price target from $320 to $350.

The analyst maintained the Buy rating and $320 price target for Square Inc.

The analyst also maintained a Buy rating and $140 price target for Fiserv Inc.

Horgan maintained Global Payments Inc. at Buy and nudged up the price target from $235 to $238.

The analyst rated Fidelity National Information Servics Inc a Neutral and increased the price. target from $140 to $146.

Horgan named Square and PayPal as his top picks in the run-up to the first-quarter earnings releases.

The Theses:Rosenblatt's positive view of payment processors is largely driven by their digital wallet offerings, Horgan said in the note.

Square's Cash App is continuing to leverage its valuable monetization playbook and PayPal is showing a renewed focus on Venmo using a similar strategy focusing on customer acquisition via new products such as crypto trading and credit card, the analyst noted.

Square On Track to Beat User Estimate:Square's Cash App is continuing to acquire customers at low customer acquisition cost and monetizing them quickly, Horgan said. The analyst expects first-quarter Cash App monthly average users to top the Street's 33.8 million estimate.

Citing positive trends in U.S. retail sales, the analyst increased his gross payment volume estimate for the quarter and earnings per share estimate from 7 cents to 12 cents.

PayPal to be Buoyed by Venmo, Product Launches:Venmo is likely to top the $900 million revenue target for 2021, Horgan said.

"Overall, we see upside risk driven by a laundry list of product launches in 2021 (i.e. Venmo crypto trading) that will positively impact PYPL's results and push shares higher," the analyst wrote in the note.

Fiserv To Hit Guidance:Fiserv is positioned well to benefit during the COVID-19 pandemic reopening, Horgan said. Given current recovery rates, the analyst expects the company to hit the high end of its guided 8-12% internal revenue growth.

Global Payments Pursues Risk Neutral Strategy:Global Payments is also a large beneficiary of the reopening, Rosenblatt said. The company's skew towards smaller sellers provides a positive decoupling of revenue growth from card network volume growth, it added.

Further, the firm sees Amazon.com, Inc.'s AWS and Alphabet Inc. Google partnerships as positive catalysts in the long-term.

Fidelity National Information Less Exposed to Reopening Tailwinds:Fidelity National continues to be a name that is likely to be less exposed to tailwinds of the reopening, Horgan said.

"In our view, outperformance in the banking segment is the biggest upside risk (strong pipeline expected to come online throughout '21)," the analyst said.