Trump tariffs could lead to negative impacts for US payment names
We are lowering the fair value estimates for the payment names that we see as the most exposed by about 10%
While we see the direct impact of the tariffs proposed by the Trump administration on payment processors as limited, the indirect effects could be materially negative.
Why it matters: We think the recently announced Trump tariffs could potentially have a material negative impact on consumer spending, which could create significant headwinds for the payments space in the near term.
- To the extent that the tariffs lead to inflation, there could be some offsetting positive impacts for the space, as revenue is tied to the size of purchases in many cases.
- However, we think the negative effects on consumer spending will likely be the dominant factor, with the names that are tied primarily to online purchases (which tend to be discretionary) or small merchants being the most exposed.
The bottom line: After adjusting our near-term assumptions down to reflect a potentially more adverse macroenvironment, we are lowering the fair value estimates for the payment names that we see as the most exposed by about 10%. We will maintain our narrow moat ratings for these companies. We still see these names as materially undervalued from a long-term perspective, but investors may need to ride out an uncertain and difficult near term to get there.
- PayPal’s PYPL online focus leaves it relatively exposed to an economic downturn, and we are lowering our fair value estimate on the firm to $94 per share from $104.
- Block XYZ and Global Payments’ focus on small merchants leaves them relatively exposed as well. We are lowering our fair value estimate for Block to $76 per share from $86 and lowering our fair value estimate for Global Payments GPN to $146 per share from $161.
