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Investing.com -- Truist Securities initiated coverage on the Payments and FinTech sector with a mixed outlook, assigning 7 Buy ratings, 7 Hold, and 3 Sell ratings.
The firm cited a shifting landscape marked by slower growth, rising competition, and macroeconomic headwinds.
“We believe the industry is now facing a triple whammy via a slowdown in… tailwinds, increased competition following a decade of outsized venture capital investment in FinTech, and a worsening macroeconomic backdrop,” Truist said in its note.
As a result, Truist expects net revenue growth for most companies to slow in 2025 and 2026.
Top Buy-rated names include Adyen (AS:ADYEN), Affirm, Fiserv (NYSE:FI), Flywire, Mastercard (NYSE:MA), Toast (NYSE:TOST), and Visa (NYSE:V). Truist categorized these as “quality compounders,” “best-in-breed growth,” or “beaten up, potential takeouts,” depending on investor risk appetite.
To help investors navigate the group, Truist developed the “Truist Securities Payments Quality Index,” ranking companies by metrics such as free cash flow conversion, leverage, and customer satisfaction.
Adyen, Mastercard, Toast, and Visa scored highest, while Global Payments (NYSE:GPN), PayPal (NASDAQ:PYPL), and Shift4 ranked near the bottom.
“In our view, it is increasingly important for investors to allocate capital to high-quality companies whose growth is driven more by idiosyncratic factors (i.e., market share gains, ability to create solutions to help their customers navigate through turbulent times, etc.) rather than the macro,” the firm wrote, adding that Mastercard was slightly preferred over Visa.
On valuation, Truist warned against firms “over-earning” from high take rates or unsustainable margins, naming dLocal, Global-e, and PayPal.
The firm also raised red flags over growth quality at Block, Lightspeed, PayPal, Shift4, and SoFi (NASDAQ:SOFI).