The consumer credit card industry has experienced a significant rebound this year, buoyed by improvements in macroeconomic factors, the easing of pandemic restrictions, and government stimulus spending. Because consumers are now more apt to spend, credit card companies have been investing heavily in digital marketing and enhanced digital payment facilities. Furthermore, the pandemic has boosted the growth of companies in the digital payment space, thanks to remote lifestyles and social distancing mandates.
As an improving market and government stimulus boosts consumer spending, credit card companies will likely benefit significantly. The rising need for consumer credit, accelerating technological innovation, and widespread use of digital prepaid card services should drive the growth of the credit card industry in the coming months. Actually, the global credit card industry is expected to reach $103.06 billion in 2021, growing at a 3% CAGR.
Hence, we think major credit card companies Visa Inc. (V), Mastercard Incorporated (MA), and Discover Financial Services (DFS) are well-positioned to capitalize on the industry’s tailwinds. So, these stocks could be solid additions to one’s portfolio now.
Visa Inc. (V)
V is a global payments technology company. It enables digital payments between customers, merchants, financial institutions, enterprises, strategic partners, and government agencies. In addition, it administers VisaNet, a transaction processing network that allows for the authorization, clearing, and settlement of payment transactions. It offers its services through Visa, Visa Electron, Interlink, VPAY, and PLUS brands.
Last month, V agreed to acquire Currencycloud, a platform that enables banks and fintech companies to deliver innovative foreign currency solutions for cross-border payments. This acquisition could bolster V’s existing foreign currency capabilities by expanding them to serve financial institutions, fintech, and partners better, while allowing new use cases and payment flows.
During its third fiscal quarter, ended June 30, 2021, V’s non-GAAP net revenue increased 27% year-over-year to $6.13 billion. Its non-GAAP operating income increased 35% year-over-year to $4.08 billion, while its non-GAAP net income grew 39% from the prior-year quarter to $3.26 billion. Its non-GAAP EPS increased 41% year-over-year to $1.49 over this period.
A $5.63 consensus EPS estimate for the current year represents an 11.7% improvement year-over-year. Furthermore, V has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The $23.63 billion consensus revenue estimate for the current year represents an 8.2% increase from the same period last year. The stock has gained 18.9% over the past year and 10.5% over the past nine months.
V’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
V is also rated a B grade for Stability, Sentiment, and Quality. Additionally, within the B-rated Consumer Financial Services industry, it is ranked #6 of 51 stocks.
To see additional POWR Ratings for Momentum, Growth, and Value for V, click here.
Mastercard Incorporated (MA)
MA offers transaction processing and other payment-related products and services in the United States and globally. The company provides payment solutions and services under the MasterCard, Maestro, and Cirrus brands. In addition, it has a strategic collaboration with Verizon Communications Inc. (VZ) and a partnership with Bilt Rewards to launch the Bilt Mastercard.
Last month, MA launched a new Start Path global startup engagement program to assist fast-growing digital assets, blockchain, and cryptocurrency companies. As part of Mastercard’s digital assets work, seven startups have joined the program, including GK8, Domain Money, Mintable, SupraOracles, STACS, Taurus, and Uphold, to expand and accelerate innovation in digital asset technology and make it safer and easier for people and institutions to buy, spend, and hold digital assets.
Also last month, JBLU announced the renewal of its co-branded credit card agreements with both Barclays and MA for a multi-year period. The partnerships aim to provide a continued supply of new, digital-centric card solutions that suit consumers’ changing demands, while encouraging engagement and loyalty.
MA’s revenue increased 35.8% year-over-year to $4.53 billion in the second quarter ,ended June 30, 2021. Its operating income surged 37.1% year-over-year to $2.34 billion. The company’s net income increased 45.5% from the year-ago value to $2.07 million over this period, while its EPS increased 47.5% year-over-year to $2.08.
The company’s EPS is expected to grow 22.2% year-over-year to $7.86 in its fiscal year 2021. Analysts expect MA’s revenue to increase 20.4% year-over-year to $18.43 billion in the current year. The stock has gained 10.9% over the past year and 9.6% over the past nine months.
MA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. MA also has an A grade for Sentiment, and a B for Stability and Momentum. In addition, the stock is ranked #13 of 51 stocks in the Consumer Financial Services industry.
Beyond the POWR Ratings grades we have just highlighted, one can see the MA ratings for Growth, Value, and Quality here.
Discover Financial Services (DFS)
DFS is a financial services company that offers credit card and electronic payment services and checking and savings accounts. Digital banking and Payment Services are the company’s two operational segments. In addition, DFS has a strategic network agreement with Arab Financial Services.
Last month, DFS and IBS MB agreed to jointly expand both businesses’ global acceptance reach. This new strategic partnership allows DFS, Diners Club International, and network alliance cardholders to use their cards on the SIBS MB network at merchant and ATM locations across Portugal.
During the second quarter, ended June 30, 2021, DFS’ total revenue net of interest expense increased 34.5% year-over-year to $3.58 billion. Its net income came in at $1.70 billion for this period, versus a $368 million net loss in the first quarter of 2020. The company’s EPS was $5.55, compared to a $1.20 loss per share in the prior-year period.
A $14.27 consensus EPS estimate for the current year represents a 296.4% increase year-over-year. The $11.61 billion consensus revenue estimate for 2021 represents a 4.7% increase from the same period last year. DFS’ stock has gained 139.6% over the past year and 47.6% year-to-date.
DFS’ POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. DFS is also rated B for Sentiment and Momentum. Within the Consumer Financial Services industry, it is ranked #8 of 51 stocks.
Click here to see additional POWR Ratings for Growth, Value, Stability, and Quality for DFS.
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V shares were trading at $232.26 per share on Thursday morning, down $2.80 (-1.19%). Year-to-date, V has gained 6.51%, versus a 19.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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