Currently, conditions are optimal for credit card companies. Consumer spending is at record highs, while household balance sheets are in good shape. Thus, defaults are likely to be low especially as the economy will remain strong well into 2022.
Of course, credit card spending continues to take a larger share of the pie which has been a multidecade trend. For investors, they can choose between credit card companies that take on risk or companies that simply process transactions.
Visa (V) and Discover Financial (DFS) are two of the most intriguing credit card plays to consider as the economy reopens.
V operates a global electronic payment network. This business has been publicly traded since the spring of 2008. V’s VisaNet serves merchant clients and financial institutions. V’s tech experts are also working to advance the company’s progress in the crypto space.
V is accepted as a form of payment in more than 200 countries. The company’s 3.5 billion cards and the aggregate volume of $11.8 trillion are considerably larger than the card figures and aggregate volume of Mastercard (MA) and American Express. In contrast, MA has 2.2 billion cards and $6.5 trillion of total volume. American Express has 114 million cards and an aggregate volume of $1.2 trillion.
V has a C POWR Rating grade indicating the sock is a Hold. V has Bs in the Quality, Momentum, Sentiment, and Stability components of the POWR Ratings. You can find out more about the stocks that make up this segment by clicking here.
Of the 51 publicly traded companies in the Consumer Financial Services sector, V is ranked in the top 20, slotting in at #19 overall. You can learn more about the Consumer Financial Services space by clicking here.
V has a forward P/E ratio of 40.78, a somewhat concerning figure. However, V has a reasonable beta of 1 on the nose, meaning it is not excessively volatile.
The analysts are bullish on V, establishing an average target price of $265.48 for the stock. If V hits this target price, it will have popped by nearly 17%. The highest target price for V is $297 while the lowest target price for the stock is $234. Across the past 154 days, the stock’s average target price has increased by nearly $38. A total of 41 analysts have issued V recommendations. Exactly 13 of these analysts consider the stock to be a Strong Buy, 23 consider it a Buy, and five consider it a Hold.
Discover Financial (DFS)
DFS is a banking and payment processing business. DFS offers credit cards, student loans, personal loans, deposit products, and more. In total, DFS products are available in more than 180 countries.
Though there is clearly risk in DFS’s portfolio of debts as it primarily consists of credit cards, unemployment is gradually decreasing and federal stimulus dollars have made it surprisingly easy for the destitute to make their credit card payments during the recession.
DFS has a B POWR Rating grade indicating the stock is a Buy. DFS has Bs in the Sentiment, Momentum, and Growth components of the POWR Ratings. Click here to learn more about how DFS fares in the remainder of the POWR Ratings components such as Quality, Value, and Stability.
Of the 51 stocks in the Consumer Financial Services space, DFS is ranked 7th overall. Investors can learn more about this sector by clicking here.
DFS has a forward P/E ratio of 8.74, meaning it is undervalued at its current trading price of $120.88. Furthermore, the stock is within a dollar of its 52-week high of $121.44. You rarely find a stock with a forward P/E ratio under 10 that is nearing its 52-week high. DFS has a beta of 1.84, meaning it will be only slightly volatile if the market as a whole significantly fluctuates in the months ahead.
Of the 21 analysts who have issued DFS recommendations, five consider it a Strong Buy, seven consider it a Buy, and nine consider it a Hold. No analysts view DFS as a Sell or Strong Sell.
V shares were trading at $229.38 per share on Friday morning, up $1.27 (+0.56%). Year-to-date, V has gained 5.18%, versus a 13.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More…
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