Financial Technology 2018 Outlook

Thomas McCrohan
Thomas McCrohan Americas Research
January 10, 2018



Our best ideas for 2018 are WEX and SEI. We are also upgrading the shares of Mastercard to Buy from Neutral, and are increasing price targets for Visa, Mastercard, PayPal, Global Payments, TSYS, Square, Vantiv, SEI, and WEX. Finally, our outlook provides an overview of our estimated impacts of tax reform on our coverage universe, as well as our thoughts on each company for 2018.

Key Points

Our best ideas for 2018 are WEX and SEI. In 2018, we view WEX as benefitting from continued organic acceleration, easier YoY comps, and one of the largest beneficiaries of tax reform within our coverage. They are entering 2018 with excellent momentum, including prospects to win the US Postal Service contract which is up for renewal this year. SEIC would be a beneficiary of an improving operating environment for U.S. banks. (e.g. higher rates, less regulation) as these firms represent one of the primary prospects for SEI’s wealth management platform. We expect improved profitability among this prospect base to lead to higher rates of pipeline conversion. Lastly, prospects for SEIC having a “bad quarter” from higher than expected operating expenses has been reduced significantly as they are a major beneficiary of tax reform.

Upgrading Mastercard to Buy from Neutral. Improved economic conditions (including prospects for inflation) would benefit payment volumes and overall transactional activity, which increases our conviction in Mastercard generating high-teen EPS growth in FY18. We anticipate FY18 guidance to be low double-digit net revenue growth, and implied high teens EPS growth inclusive of buybacks.

Tax reform thoughts. We view the biggest beneficiaries of tax reform to be WEX, SEIC, and HAWK. In terms of the interest deductibility portion of the tax reform act, none of our companies under coverage are near the 30% EBITDA cap, and therefore headroom remains to take on incremental debt. Our note provides our estimate of the potential EPS impact from tax reform, but we will wait to update our published estimates after management teams provide their assessment, which we expect will be during year-end earnings calls.

Our note provides company-specific thoughts on 2018, including our views on company’s specific 2018 financial guidance. Each of our company specific summaries include our current investment thesis for each stock and a look-back at 2017.

View the full research report for important disclosure and analyst certification information. Ratings and/or Price Targets may change. Refer to the US Equity Research Portal library for the most recent company research.

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