KBW: Card Stocks To Watch This Morning

• Heartland Payment Systems, Inc. HPY shares have gained 10 percent in the past one month, while shares of Vantiv Inc VNTV are up 4 percent during the same time.
• Keefe, Bruyette & Woods’ Sanjay Sakhrani downgraded the ratings on the companies from Outperform to Market Perform.
• While noting that headwinds remained, Sakhrani said that the underlying fundamentals of companies in the cards and payments space continued to be strong. The downgrades follow share appreciation in 3Q15.

During 3Q15, credit, loan growth, and volume trends were in-line to marginally ahead of expectations, analyst Sanjay Sakhrani said. Some improvements in the US economy continued to benefit companies in the sector.

Stocks in the sector declined 2.7 percent on average in 3Q15, being weighed down by factors such as unfavorable trends in global economies, particularly in China and the emerging markets, negative currency impacts and lower gas prices, Sakhrani mentioned.

While these headwinds are likely to impact companies during the current quarter, the analyst pointed out that the underlying fundamentals remain strong, “driven by the continued secular shift in payments.”

While downgrading the ratings on Heartland Payment Systems and Vantiv to Market Perform from Outperform, Sakhrani maintained their price targets at $70 and $49, respectively. The analyst cited “strong share performance in 3Q15” as the reason for the downgrade.

In the report Keefe, Bruyette & Woods noted, “While there is upside potential to our and consensus EPS estimates for both names, we think much of this is already incorporated into the shares.”

Plans of First Data and Worldpay to go public may not have “a large fundamental impact” on the acquirers in the near-to-intermediate term, since the landscape is already highly competitive, Sakhrani said. He added, however, that there could be “technical pressure on the public acquirers if investors were to liquidate some of their positions in order to make room for either First Data and Worldpay.”

In the longer term, First Data and Worldpay having access to the public markets could result in stiffening competition, particularly in the US, which is a more mature market, the analyst noted.