Increasing skepticism towards technology stocks in recent months has devalued the shares of many vendors on American Banker's weekly chart, but no group has been battered harder than the card processors.

Five of the 10 companies listed in the group are trading more than 50% below their annual highs. And there are few signs that the group will stage a rally any time soon.

On the surface, this makes little sense. Card processing volumes continue to grow at double-digit rates, and analysts said the revenue streams from these companies generally are steady.

However, a few factors are working against those positives.

For starters, investors fear the effect on processors' revenues of problems in the consumer credit market. Growth in credit card transaction volume has already slowed.

"I think people have been very concerned with the rising amounts of debt and delinquency in credit card portfolios," said Mark Wolfenberger, analyst at Deutsche Morgan Grenfell's New York offices.

To date, issuers, with their frenzied efforts to get cards into the hands of as many consumers as possible, have helped transaction processors.

But as consumers begin to buckle under the weight of their rising debt, the card distribution strategies could "come back to haunt us in the next couple of months, and could impact the basic processing business," said Mr. Wolfenberger.

According to Richard K. Weingarten, principal at Montgomery Securities in San Francisco, card transaction volumes continue to grow, but at lower rates than in recent years.

Montgomery Securities estimated the growth of credit and off-line debit transactions slowed to about 14% in 1996 from 19% the previous year.

The slowdown is hardly cause for panic, since over the last 10 years card processing transactions have grown roughly 15% a year on average.

Nonetheless, investors seem to be indicating that the period of go-go growth is over, and their actions are bringing card processors' share prices and valuations down from the unnaturally high levels they have risen to in recent years.

In the last two or three years, card processors regularly exceeded earnings estimates, causing investors to "get real excited about their stories," said Mr. Weingarten. But, he added, "The multiples they went up to were unrealistic. It's not surprising that they might correct down a little more in order to get the multiples in line."

National Processing Co. has been among the hardest hit in the current market. Shares of the Louisville, Ky.-based merchant processor have lost more than 64% of their value since its initial public offering last summer.

The company, whose stock was trading at $7.75 late Friday afternoon, announced earnings last week of a penny per share, compared to 14 cents in the year-earlier quarter. The drop is partially due to a one-time charge for employee severance packages. Without the charge, earnings would have been 9 cents per share.

Another contributing factor is that the National City Corp. spinoff mines a niche among large merchants in which "there is a lot of price competition," Mr. Weingarten said.

"The leading players are squeezing the smaller players," making the market overly ripe for consolidation, he said.

Among the others experiencing prolonged stock declines is First Data Corp., the nation's largest card processor. The Hackensack, N.J.-based company's stock price has sunk more than 19% since October.

The share price of First USA Paymentech Inc., a Dallas-based processor of merchant credit card transactions, dropped more than 46% in the same period.

SPS Transaction Services Inc.'s stock has held steady in recent months, trading between $15 and $19. But that range is significantly off its annual high of $27.

Last week, the Riverwood, Ill.-based processor reported net income of $7.4 million for the quarter ending in March. It earned 27 cents per share, 6 cents above Wall Street's consensus estimate. The company's stock was trading at $16 late Friday afternoon.

Mr. Weingarten said the weakness among card processing firms was "cyclical," and added that the sector's long-term prospects remained healthy.

"I think we are back at a more realistic level," he said, referring to card processors' valuations.

"The fundamental stories are intact at these companies, and that makes them pretty good investments.

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