This Week, Industry Snapshot Looks at Transaction Processing Companies

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ENVOY Corporation

First Data Corporation

First USA Paymentech, Inc.

National Data Corporation

NOVA Corporation

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This Weeks Industry Snapshot

Citing weakness in its Merchant Services division, National Processing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAP)") else Response.Write("(NYSE: NAP)") end if %> tumbled to a 52-week low in early March. The $354 million transaction processing company pre-announced lower-than-expected first quarter and full year 1997 earnings, noting that the pricing environment for new business as well as for potential acquisitions was more severe than it had originally anticipated. National Processing's stock suffered accordingly, its shares were cut $2 1/4 (21.4%) to $8 1/4 on more than six times its average daily volume. Since that time NAP has retreated even further, falling to $7 a share.

As is often the case when a prominent member of a particular segment falls out of favor due to industry pricing concerns, the rest of the sector comes under pressure as well. First Data Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDC)") else Response.Write("(NYSE: FDC)") end if %> limited exposure to transaction processing insulated it from the full fury of the meltdown, dropping an insignificant $0.50 to $33 3/4. However, others in the sector did not go untarnished, First USA Paymentech <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTI)") else Response.Write("(NYSE: PTI)") end if %> dropped $2 7/8 to $30 1/8 and has since crashed to $23 and change. BA Merchant Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BPI)") else Response.Write("(NYSE: BPI)") end if %>, NOVA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NIS)") else Response.Write("(NYSE: NIS)") end if %>, and PMT Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMTS)") else Response.Write("(Nasdaq: PMTS)") end if %> each dropped by over a $1, or more than 5%. Since that fateful announcement most of the stocks in the group have been shunned by investors, resulting in further drops, which were only exacerbated by false associations with interest rate concerns.

The question becomes, is this unwarranted treatment of a group that has been roundly hailed as the main beneficiary of the trend toward increased use of credit? A recent issue of the Nilson Report forecasts a dramatic shift in the composition of payment streams over the next decade. Presently, the complete universe of credit and debit cards account for a mere 19% of the total payment stream for goods and services. By 2005, Nilson suggests that this number will grow to 50% of the total. Is the market properly discounting the group as the result of an anticipated slowing in transaction volumes, or does this retreat represent an opportunity for investors with an eye toward the long term? Let's take a closer look at segment.

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