2 “Strong Buy” Stocks with Solid Long-Term Upside

Last Friday’s stock market performance was a disappointing way to round out the week. Following three consecutive sessions of closing in the green, a rare occurrence these days, the S&P 500 capped off the week with a loss, a rude awakening for anyone that thought stocks were leaving bear market territory in the dust. Today, though, U.S. stocks rebounded with the S&P 500 gaining about 2.5%.

With this in mind, investors are buckling down and bracing for sustained volatility. As for how long the volatility will persist, no one can be entirely sure, but the pros remind investors that the current economic climate doesn’t signal doomsday for every name on Wall Street. According to the analysts, a select few are not only sturdy enough to weather the storm, but are also set up for noteworthy long-term growth to the upside, specifically pointing to the payments industry.

After a series of huge mergers in the last year, one analyst in particular, Kenneth Hill of Rosenblatt Securities, wrote in an initiation report for a few payments names, “We believe that while the near-term may be choppy, the longer-term opportunities are as strong as ever for the industry as the recent crisis reshapes and catalyzes behavior (cashless, online, etc.) that strengthens the business model for the group.”

In the hope of coming across some hidden gems, we turned to TipRanks’ database. With the investing platform’s help, we were able to zero in on two names getting nods of approval from Hill and the rest of the analyst community, enough so to have a “Strong Buy” consensus rating bestowed upon them. Add in hefty upside potential and you have two compelling investment opportunities. Let’s get started.

Global Payments (GPN)

As one of the leading payment processors, Global Payments offers effective payments and software solutions that simplify commerce and help companies of all sizes achieve success. Even though shares have shed a significant portion of their value since the beginning of 2020, several members of the Street have high hopes for the company.

Among GPN’s fans is Hill. Driving his bullish thesis is its recent M&A activity. In May of last year, GPN announced that it had agreed to merge with TSYS, a deal worth $21.5 billion.

Expounding on the implications of the agreement, Hill wrote, “Given the merger with TSYS, the combined GPN emerges as one of the more dominant players in the payments space. The company boasts a best-in-class merchant solutions business supported by a global presence, local relationships, and extensive omni/ecommerce capabilities…We expect this combination to be greater than its sum of the parts, particularly as it generates positive synergy momentum on both on the revenue and expense sides of the business.”

Going forward, all eyes are on integrations. Management stated that it plans to achieve $100 million of revenue synergies within three years of closing, with organic growth expected to come as a result of the combination of two high-quality businesses. As for expenses, overlap in the U.S. merchant business, customer service cost reductions, the ability to combine platforms and corporate overhead should translate to some serious savings.

Given GPN’s strong positioning when it comes to merchant services, a component of the business that could make up two-thirds of its future revenue, it’s no wonder Hill decided to side with the bulls. In addition to initiating coverage with a Buy recommendation, the five-star analyst set a $179 price target. This implies shares could surge 20% in the coming year. (To watch Hill’s track record, click here)

Turning now to the rest of the Street, other analysts are also bullish when it comes to GPN. A Strong Buy consensus rating breaks down into 18 Buys and 2 Holds received in the last three months. At $205.45, the average price target is more aggressive than Hill’s and puts the upside potential at 38%. (See Global Payments stock analysis on TipRanks)

Fidelity National Information Services (FIS)

With merchant, banking and capital market solutions as well as a market cap of $74 billion, Fidelity takes its place among the payment industry heavyweights. Like GPN, shares are also down year-to-date, but according to analysts, a turnaround is on the horizon.

On the heels of its July merger with Worldpay, Hill, who also covers Global Payments, is singing the company’s praises. “While FIS is likely to benefit from a solid industry tailwind over time, the company also boasts best-in-class merchant and banking businesses seeing a lot of recent traction as a result of the Worldpay merger. We believe that continued progress on both fronts will be critical in driving future outperformance for the firm against the 6-9% organic revenue growth target for the pro-forma company,” he explained.

Synergies could also be the force that propels FIS forward. “The other strong tailwind we see at FIS’s back is the ability to outperform on the synergy front. Revenue and cost synergies are coming in ahead of expectations (and have been increasing), but still have more room to move higher, in our view,” Hill commented.

Additionally, part of what makes FIS a stand-out is the fact that it can cater to large, multi-national corporations as opposed to only smaller enterprises like some of its peers. It should also be noted that unlike its competitors, the payments name has a solid standing both inside the U.S. as well as internationally.

With respect to the banking segment, FIS has made some noteworthy strides. During the most recent quarter, the company made moves upstream to the larger banks, signing agreements with a top 10, a top 20 and a top 30 player. Hill noted, “The company sees a long runway ahead for similar deals over the next decade+ as in-house legacy applications are replaced with cloud-native open banking solutions. In fact, on the most recent call, management noted that the pipeline is as full as they have seen for core banking on a global basis for next generation capabilities.”

Based on everything that the payments giant has going for it, it should come as no surprise that Hill is optimistic about Fidelity’s long-term growth prospects. Also kicking off his coverage of this ticker, the analyst published a Buy rating and put a $140 price target on the stock. Given this target, a 13% twelve-month gain could be in store.

Looking at the consensus breakdown, the bulls have it. With 16 Buy ratings and 4 Holds issued in the last three months, the word on the Street is that FIS is a Strong Buy. Should the $164.61 average price target be met in the next year, a 33% return stands to line investors’ pockets. (See Fidelity stock analysis on TipRanks)

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