For U.S. Card Issuers, Recession Worries May Foreshadow A Good Quarter

U.S. card companies are likely to strike a cautious tone in their quarterly results as rising prices imperil strong spending by Americans stepping out of their pandemic shells.

While they have not so far cut back on buying household appliances or even big ticket purchases like cars, a vacation has not been on the cards for many, according to a survey from the Conference Board.

Record high gasoline prices and expensive airfare could slow consumer spending on travel - a big source of revenue for Mastercard, Visa and America Express.

For now, Wall Street analysts are not much worried about that.

"The general economic background for the consumer continues to remain quite solid. Most of the forward indicators indicate a healthy consumer balance sheet," said Mihir Bhatia, equity research analyst at Bank of America Securities.

THE CONTEXT

The financial health of Americans held up well in the second quarter even as gas and grocery bills swelled, eating into their savings for the first time since the pandemic, U.S. bank executives said.

While U.S. consumer confidence dropped to a 16-month low in June on worries about high inflation and a possible recession, there is still a long way to go before those fears materialize, data show.

"Because of their diversification, their reach online and in-store, Visa and Mastercard are very well-positioned despite the macroeconomic situation", said Jordan McKee, principal research analyst at 451 Research, the tech research group within S&P Global Market Intelligence.

Investments in the cryptocurrency space, real-time payments and other expansion initiatives over the years will also benefit the two credit card giants, McKee said.

Despite tough comparisons with last year, when the Federal Reserve and the U.S. government pumped in easy money, credit quality remains strong, according to Credit Suisse analysts Moshe Orenbuch and Hoang Nguyen.

"Based on the current delinquency profile, we don't see any evidence suggesting a sharp increase in credit loss soon," the analysts said.

AmEx will report its quarterly results on Friday, while Visa and Mastercard are expected to report next week.

THE FUNDAMENTALS

Refinitiv revenue

Company estimate Refinitiv EPS

estimate

AmEx $12.5 bln (Up 22.1% y-o-y) $2.41

Visa $7.08 bln (Up 16.1% y-o-y) $1.74

Mastercard $5.23 bln (Up 16.2% y-o-y) $2.35

WALL STREET SENTIMENT

** American Express - 16 of 30 brokerages rate the stock "buy" or higher, 13 "hold" and one "sell"; their median PT is $178.50, down from last month's $202

** Visa Inc - 39 of 43 brokerages rate the stock "buy" or higher, four "hold"; their median PT is $270

** Mastercard Inc - 38 of 42 brokerages rate the stock "buy" or higher, three "hold" and one "sell"; their median PT is $430, down from last month's $438