Wells Fargo downgrades two fintech stocks, says Powell's 'pain' commentary spells trouble for the sector

Published Thu, Sep 8 20228:54 AM EDT

Comments from Federal Reserve Chairman Jerome Powell at the central bank's annual symposium in Jackson Hole, Wyoming, could put a damper on some fintech stocks going forward, according to Wells Fargo. Analyst Jeff Cantwell downgraded shares of Fidelity National Information Services and Marqeta to underweight, citing growth fears for the sector in the months ahead. "We expect the 'pain' Mr. Powell and the Fed see as required to drive inflation down to 2% — and then remain there — will negatively impact future growth in consumer and business spend going forward, thereby impeding revenue and earnings generation within our Fintech coverage," Cantwell wrote. The downgrades from Wells Fargo comes as markets anticipate a more hawkish Federal Reserve ahead with another big hike expected when the central bank convenes later this month. Powell said in August that he expects the central bank to continue hiking interest rates in order to bring inflation back down to its 2% goal, which could cause "some pain" to the U.S. economy ahead. The central bank's continued aggressive approach to taming inflation means rates could stay higher for longer, which will impact profitability for fintech stocks, Cantwell noted. He said that the bank anticipates a 140 basis-point headwind to revenue growth over the next 12 months across its coverage. "More directly for Fintech, we see the stance taken by the Fed negatively impacting employment and consumer spending as well as business spending, and by extension, this would impact payment volumes and revenue for Fintech companies," he said. Among his reasons for downgrading Fidelity National Information Services, Cantwell cited a muted outlook for earnings per share growth next year and a slowdown in both merchant and banking revenue growth. He cited consistent changes to Marqeta's management team since its IPO and slowing growth among the reasons for the sentiment shift. "We see other companies like FLYW and TOST growing their top-lines faster next year (and beyond), while also demonstrating better profitability than Marqeta," he wrote. Wells Fargo trimmed its price target on Fidelity National to $88 a share, which implies a 3% downside from Wednesday's close. The bank also adjusted its target on Marqeta to $7 a share, meaning shares could fall about 7%. — CNBC's Michael Bloom contributed reporting