Credit Card Weekly Notes: Discover, MasterCard, American Express

-3.83%
Downside
120
Market
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Trefis
DFS: Discover Financial Services logo
DFS
Discover Financial Services

During this week through Thursday, December 18, credit card stocks traded well. In this weekly note, we take a look at the latest delinquency and charge-off rate data released by Discover Financial (NYSE:DFS). We also take a look at MasterCard’s (NYSE:MA) push to tap into the growing market in the South-Asian region. Finally, we include a brief on the latest data released by American Express (NYSE:AXP) suggesting a revival in consumer spending as Christmas approaches.

Discover Financial Maintains Low Delinquency In November

Discover released data on delinquency rates and credit card charge-off rates for the month of November. The company reported loans worth $54.6 billion on November 30, 2014, and its delinquency rate (30-days period) over the month remained unchanged at 1.8% compared to the previous month. Over the past twelve months, the company has been steadily maintaining low delinquency rates in the 1.6-1.8% range. [1] The delinquency rate is the percentage of total loans that are past their due dates. Discover’s net principal charge-off rate (the percentage of loans considered unredeemable) was 2.4% for the month of November, slightly higher than 2.1% in the previous month. Over the twelve month period, the rate has ranged between 2.1-2.5%. In another article Discover, AmEx Maintain Low Delinquency Levels And Charge-Off Rates, we discussed in detail the low rates for Discover.

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Discover’s stock gained over 3% through Thursday. We have a price estimate of $65 for the company’s stock, translating into a valuation of just over $29 billion, which is about in line with the current market price.

See our complete analysis of Discover Financial here

MasterCard Makes A Push In Sri Lanka, Maldives

MasterCard announced that it is setting up a dedicated country office in Sri Lanka, 25 years after starting operations in the island nation situated south of India. The company also announced the appointment of R.B. Santosh Kumar as the country manager for Sri Lanka and the Maldives, in a bid to strengthen its existing offerings and charting new business gains. [2] With a country dedicated office, the company aims to tap into the potential growth that the country offers. The country is a popular tourist destination and reported close to 1.3 million arrivals in 2013, a strong rise of 26% over 2012. [3] The Tourism and Travel industry directly contributed about 3.5% ($6.3 billion) to the country’s GDP, 84% of which accounted for leisure spending. [4] The Maldives, on the other hand, has already had over 1 million tourist arrivals during the first ten months of 2014. [5] The Tourism and Travel industry’s direct contribution to the Maldives’ GDP was close to 50% ($2.3 billion), 96% of which contributed to leisure spending. [6]

During the past week, MasterCard’s stock gained nearly 3% to close trading on Thursday at $87. We have a price estimate of $83 for MasterCard’s stock, slightly below the market price, valuing the company at about $96 billion.

See our full analysis of MasterCard here

American Express Suggests Higher Spending During Christmas Weekend

After a slow start to this year’s holiday shopping season, during which customers showed a reluctant spending pattern, AmEx’s latest Spending and Saving Tracker survey revealed that a majority of consumers (79%) plan to spend more during the Christmas holiday. Consumers are expected to spend $192 per person on the day after Christmas, compared to $188 a year ago. [7]

AmEx’s closing price of $93 on Thursday put the company’s market cap at just over $94 billion, compared to our valuation of $106 billion. The stock was up by over 2% during the week. We have a price estimate of $102 for the company’s stock. We estimate EPS of $5.66 for the current calendar year, slightly higher than the consensus EPS of $5.56 for the company.

See our complete analysis of AmEx’s stock here

Notes:
  1. Sec 8-K Filing, December 15 2014 []
  2. MasterCard Appoints R. B. Santosh Kumar to the Role of Country Manager, Sri Lanka and Maldives, MasterCard Press Release []
  3. Tourist Arrivals by Month – 2012 & 2013, Sri Lanka Tourism Development Authority []
  4. Travel and Tourism, Economic Impact 2014, Sri Lanka, World Travel and Tourism Council []
  5. Tourism Arrivals by Nationality January-October 2014, Ministry of Tourism – Maldives []
  6. Travel and Tourism, Economic Impact 2014, Maldives, World Travel and Tourism Council []
  7. American Express Spending & Saving Tracker []