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American Express is the biggest gainer in the Dow Jones Industrial Average during Monday’s session.
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Pfizer Inc. and BioNTech SE’s upbeat vaccine news is giving a lift to many payments stocks Monday amid hope that a vaccine can revive the global travel landscape and drive a broader recovery in consumer spending.
Shares of Visa Inc. V, +8.22% are up 9% in Monday trading, while shares of Mastercard Inc. MA, +11.13% are up more than 11% after Pfizer PFE, +10.31% and BioNTech BNTX, +14.47% said that their vaccine candidate had shown 90% effectiveness in preventing COVID-19, a much higher threshold than originally expected.
“With a vaccine showing good progress, we think the travel-sensitive and [small- and medium-sized business]-sensitive stocks could rally,” Baird analyst David Koning wrote in a note to clients. Visa and Mastercard generate about 20% to 25% of their revenue from cross-border travel, he wrote, and this category may have been down by 70% to 75% in recent months by his estimation.
Mastercard noted on its last conference call that global travel has largely been stalled, with the exception of some travel between countries within the European Union. Those intra-Europe transactions are “lower yielding” than other cross-border transactions, Chief Financial Officer Sachin Mehra said. That means that Mastercard keeps a bigger portion of the transaction when processing cross-border payments between customers and merchants who aren’t both from the EU.
In addition, credit spending has been depressed while consumers have shown a preference for debit cards, viewed as a more conservative payment instrument. “Travel, by and large, happens to be more credit-oriented,” Mehra said on Mastercard’s earnings call in late October, so the company expects to see a rebound in that part of the business once international travel rebounds.
Read: Visa and Mastercard have a lot in common, but COVID-19 puts one key difference in focus
Shares of American Express Co. AXP, +22.97% are leading the Dow Jones Industrial Average higher Monday, up 21% in the session. Travel and entertainment are the company’s “bread and butter,” according to Susquehanna analyst James Friedman, who wrote that these areas made up 26% to 30% of the company’s booked business in the quarters leading up to the pandemic, “with airlines alone at 7% to 9%.”
American Express also provides corporate travel services. In general, business travel has been slow to bounce back even as domestic personal travel picks up. “If you look at our corporate card business, obviously, there’s…hardly anybody that is sort of traveling at this point,” Chief Executive Stephen Squeri said on the American Express earnings call in October.
The hope is that a vaccine could help bring more normalcy to the way people work.
See more: Financial stocks soar, led by American Express after upbeat news on potential COVID-19 vaccine
While the big credit-card names are up sharply in Monday’s session, new-school payments names whose stocks have rallied since the start of the pandemic are falling. These include PayPal Holdings Inc. PYPL, -6.16%, which has seen record spending on its platform as the COVID-19 crisis has driven more people to buy things online and brought more consumers, especially older generations, into the digital fray.
PayPal shares are down about 6% in the session.
In a sign of how much Square Inc.’s SQ, -4.59% narrative has shifted since the start of the pandemic, its stock is also trading lower Monday, off about 5%.
Square is known for providing payment-processing services to small businesses, and its stock fell in the early days of the crisis amid fears that local merchants would be especially pressured by restrictions on business activity. A vaccine should help those small businesses, but Square’s stock appears to be taking a breather after what turned out to be a 150% rally over the past six months, once investors came to see more value in other parts of the company’s business such as the Cash App mobile wallet and online stores for merchants.
Other names that could benefit from a bounce back for small businesses include processors Fiserv Inc. FISV, +6.94%, Fidelity National Information Services Inc. FIS, +7.51%, and Global Payments Inc. GPN, +11.53%, according to Baird’s Koning. He calculates that about 10% to 15% of revenue for Fiserv and FIS is driven by brick-and-mortar small- and medium-sized businesses, along with perhaps 25% to 30% of revenue for Global Payments. All three should see “very easy” comparisons in the second quarter of 2021, he wrote.
Fiserv shares are up 8.6% in midday trading Monday, while FIS shares are up 8.5% and Global Payments shares are up 12.7%.
