The top payments stocks to own in 2024, according to BofA

Looking ahead, BofA has named its top picks for 2024 in the Payments, Processors and IT Services space. The firm sees Accenture (ACN), American Express (AXP), Global Payments (GPN) and Block (SQ) as the names poised to shine brighter in the upcoming year.

TOP PICKS: The past two years have been challenging for the performance of many Payments stocks due to a mix of cyclical and structural concerns, BofA says in a research note to investors. While consumer spending and competition remain critical dynamics, some stocks may have over-discounted these risks, the firm argues. BofA believes the sector could get out of its rut if higher visibility on estimates emerges, there’s a pickup in industry M&A, or rotation out of other Financials and Tech sub-sectors. Overall, BofA’s Strategy and Economics teams are calling for a soft landing for the U.S. economy in 2024, with Fed rate cuts to begin in June 2024.

The firm names Accenture, American Express, Global Payments and Block as its top picks for 2024. BofA sees Accenture’s 2024 guide as largely de-risked, expects steady revenues growth re-acceleration starting in the February quarter, believes Accenture is a “share-taker in any macro backdrop,” and sees reasonable valuation. Meanwhile, the firm views American Express’s exposure to the high-end consumer and business spending favorably, and also thinks execution has been strong. Regarding Global Payments, BofA believes the company’s business mix, competitive position, and execution are significantly underrated at current valuation. Bigger share buybacks could come in 2024, it adds. In the firm’s view, Block turned a corner with its latest print, committing to more robust/specific profitability targets. Total GP growth of mid-teens still seems plausible for the next few years. Sentiment/positioning setup remains favorable, it adds.

RATING SHAKEUP: BofA has also upgraded Discover (DFS) and Capital One (COF) to Buy from Neutral with price targets of $116 and $129, up from $94 and $112, respectively. The firm thinks peak delinquencies could come into view in the next 3-6 months and so believes it is “time to get incrementally more bullish on the credit card stocks.” Additionally, BofA upgraded Jake Henry (JKHY) to Buy from Neutral as its high-quality business model should be buoyed by improving macro conditions, which could catalyze healthier spend among FIs. After shares lagged in 2023, risk/reward has become more favorable, plus margin expansion and free cash flow conversion should improve in 2025, the firm argues.

On the flip side, BofA downgraded PayPal (PYPL) to Neutral from Buy. The firm sees 2024 as a transition year, as a new CEO and CFO seek to earn Street credibility while driving sustained improvements in top-line metrics, especially transaction profit growth, which will likely take time. BofA also cut Toast (TOST) rating to Neutral from Buy, primarily on slower top-line momentum and increasing competition.

PRICE ACTION: In Tuesday morning trading, shares of Accenture and Global Payments have gained about 1%, as Block’s stock jumps almost 6%. Meanwhile, shares of American Express have dropped about 0.5%.