Credit card usage and other online payment methods increased significantly over the past year as people increasingly relied on digital modes of payment necessitated by their remote lifestyles. But with the fast-paced economic recovery this year—aided by rapid coronavirus vaccinations—spending on services and discretionary items has increased significantly. According to the Commerce Department, overall consumer spending remained flat in May because a $71.5 billion decrease in spending for goods was balanced by a $74.3 billion jump in spending on services.
Furthermore, according to The Conference Board, the consumer confidence index stood at 127.3 points in June, up from 120 points in May. Strong consumer confidence is expected to translate into more spending, implying a greater use of credit cards. Accelerating technological innovation and rapid adoption of digital prepaid card services could also drive the growth of the credit card market in the coming months. According to Research and Markets, the global credit card market is expected to grow at a 3% CAGR to hit $103.06 billion in 2021.
So, we think it could be wise to bet on shares of established credit card companies American Express Company (AXP), Capital One Financial Corporation (COF), Discover Financial Services (DFS), and Synchrony Financial (SYF) because they companies are well positioned to capitalize on increasing consumer spending.
American Express Company (AXP)
AXPprovides charge and credit payment card products and travel-related services worldwide. It operates through three segments: Global Consumer Services, Global Commercial Services, and Global Merchant and Network Services. The company’s products and services include payment and financing products, network services and travel and lifestyle services.
Kabbage, one of AXP’s subsidiaries, launched Kabbage Checking on June 14, 2021. It is the first business checking account offered by AXP as a part of its broader integrated cash-flow management platform built for U.S. small businesses. The launch further expands the company’s portfolio of services.
AXP’s expenses decreased 7% year-over-year to $6.75 billion for the first quarter, ended March 31, 2021. Its pre-tax income grew 562.2% year-over-year to $2.99 billion, while its net income increased 509% year-over-year to $2.23 billion. Also, its EPS came in at $2.74, up 568.3% year-over-year.
For the quarter ended June 30, 2021, analysts expect AXP’s EPS and revenue to increase 424.1% and 15.4%, respectively, year-over-year to $1.52 and $ 9.41 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock has gained 77.5% over the past year to close yesterday’s trading session at $166.94.
It’s no surprise that AXP has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has a B grade for Momentum and Sentiment. Click here to see AXP’s ratings for Growth, Value, Stability, and Quality. AXP is ranked #14 of 51 stocks in the B-rated Consumer Financial Services industry.
Capital One Financial Corporation (COF)
COF is a diversified financial services holding company that offers a range of financial products and services to consumers, small businesses and commercial clients through branches, internet and other distribution channels. It operates through three segments: Credit Card, Consumer Banking, and Commercial Banking and other.
The company paid a quarterly dividend of $0.40 per share on May 28, 2021. COF also paid a $10.20 quarterly dividend on June 1, 2021, on the outstanding shares of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series E, among others. This is an indication of the company’s solid financial strength.
COF’s income from continuing operations increased 37% sequentially to $4.20 billion for the first quarter, ended March 31, 2021. Its net income grew 30% sequentially to $3.32 billion. Its total assets increased 8% year-over-year to $421.81 billion. Also, its EPS came in at $7.03, up 31% year-over-year.
For the quarter ended June 30, 2021, analysts expect COF’s EPS to be $4.37, which represents a 297.7% year-over-year increase. It surpassed consensus EPS estimates in three of the trailing four quarters. Its annual revenue is expected to rise 5.1% year-over-year to $30.37 billion in 2022. The stock has gained 158.9% over the past year to close yesterday’s trading session at $157.15.
COF’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The stock has an A grade for Sentiment, and a B grade for Growth and Momentum. Within the Consumer Financial Services industry, COF is ranked #6. To see all the additional POWR Ratings for COF (Stability, Value, and Quality), click here.
Discover Financial Services (DFS)
DFS is a digital banking and payment services company in the United States. It operates in two segments: Digital Banking and Payment Services. Its Digital Banking segment offers Discover-branded credit cards, and its Payment Services segment operates the PULSE network, an automated teller machine, debit, and electronic funds transfer network.
On May 18, 2021, Arab Financial Services and DFS signed a strategic network alliance agreement that is expected to increase the global acceptance footprint of both the organizations. Matt Sloan, vice president of international markets at DFS, said, “By connecting with innovative payment partners like AFS, we are able to provide our cardholders with the global reach and localization they require.”
The company’s network volume increased 16.2% year-over-year to $115.13 billion for the first quarter, ended March 31, 2021. Its income before taxes grew 104.8% sequentially to $2.08 billion, while its net income increased 99.4% sequentially to $1.59 billion. Also, its EPS came in at $5.04, up 94.6% sequentially.
Analysts expect DFS’ EPS to be $3.33 for the quarter ended June 30, 2021, which represents a 377.5% year-over-year increase. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 8.6% year-over-year to $2.90 billion for the quarter ending September 30, 2021. The stock has gained 148.2% over the past year to close yesterday’s trading session at $119.69.
DFS’ POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It also has a B grade for Growth, Momentum, and Sentiment. Click here to see DFS’ ratings for Stability, Value, and Quality. DFS is ranked #5 in the Consumer Financial Services industry.
Synchrony Financial (SYF)
SYF is a consumer financial services company that provides a range of specialized financing programs and consumer banking products to auto, retail, home and other industries. The company also offers private label credit cards, dual cards, general purpose co-branded credit cards, and small- and medium-sized business credit products.
On May 24, SYF and CITGO Petroleum Corporation announced a multi-year extension of their strategic partnership, highlighting SYF’s commitment to offer CITGO customers enhanced purchasing options and more benefits. Curtis Howse, the CEO of SYF’s Payment Solutions segment, said, “Our partnership with CITGO has continued to grow through a dynamic environment. We constantly strive to improve customer experience, build functionality, and collaborate with our partners to build brand loyalty.”
The company’s provision for credit losses decreased 80.1% year-over-year to $334 million for its fiscal first quarter, ended March 31, 2021. Its earnings before income taxes grew 244.2% year-over-year to $1.31 billion. SYF’s net earnings came in at $1.02 billion, which represents a 258.4% year-over-year increase. The company’s EPS was $1.73, up 284.4% year-over-year.
Analysts expect SYF’s EPS to come in at $1.37 for the quarter ended June 30, 2021, which represents a 2,183.3% year-over-year increase. The company’s annual revenue is expected to increase 7% year-over-year to $15.34 billion in its fiscal year 2022. The stock has gained 126.2% over the past year to close yesterday’s trading session at $48.87.
SYF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary ratings system. It has a B grade for Sentiment, Quality, and Momentum also. We have also graded SYF for Growth, Value, and Stability. Click here to access all SYF’s ratings. SYF is ranked #7 in the Consumer Financial Services.
AXP shares were trading at $168.66 per share on Friday morning, up $1.72 (+1.03%). Year-to-date, AXP has gained 40.77%, versus a 16.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.4 Credit Card Stocks to Buy as Consumer Spending Remains High appeared first on StockNews.com