Fintech company SoFi Technologies, Inc. (SOFI) made its stock market debut on June 1, 2021 by merging with Social Capital Hedosophia Corp V, a blank-check company. It made an impressive debut, with its stock rallying more than 12% on the day of listing. However, the stock has lost 20.1% over the past month to close yesterday’s trading session at $16.94. Analysts expect its EPS to remain negative in its fiscal years 2021 and 2022. Furthermore, the company’s trailing-12-month net income margin and ROTA are negative compared to the 28.18% and 1.15% respective industry averages. Given its weak financials and growth prospects, SOFI looks extremely overvalued at its current price level. Its 13.71x forward P/S is 331.1% higher than the 3.18x industry average. So, we think it’s wise to avoid the stock now.
However, the continuing economic recovery and rapid technological innovation are driving the growth of the credit services. 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. Investors’ interest in the credit services space is partly evidenced by the Financial Select Sector SPDR Fund’s (XLF) 17.7% gains over the past six months.
So, instead of betting on SOFI, we think it could be wise to bet on the shares of quality credit services companies American Express Company (AXP), Capital One Financial Corporation (COF), and Discover Financial Services (DFS). These companies are well positioned to capitalize on the industry tailwinds.
American Express Company (AXP)
AXP provides charge and credit payment card products and travel-related services worldwide. It operates through three segments--its Global Consumer Services Group, 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. AXP is based in New York City.
Kabbage, one of AXP’s subsidiaries, launched Kabbage Checking on June 14. 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 could further expand 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 434.5% and 16.1%, respectively, year-over-year to $1.55 and $9.47 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock has gained 83.8% over the past year to close yesterday’s trading session at $170.98.
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 has an A grade for Sentiment, and a B grade for Momentum. Click here to see AXP’s ratings for Growth, Value, Stability, and Quality also.
AXP is ranked #15 of 51 stocks in the B-rated Consumer Financial Services industry.
Capital One Financial Corporation (COF)
McLean, Va.-based 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 $0.40 quarterly dividend per share on May 28, 2021. COF also paid a $10.20 quarterly dividend on June 1 on the outstanding shares of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series E, among other Series. These transactions represent COF’s 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, and 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 $4.45, representing a 301.4% year-over-year increase. It surpassed consensus EPS estimates in three of the trailing four quarters. Its annual revenue is expected to rise 5.2% year-over-year to $30.41 billion in its fiscal year 2022. The stock has gained 158.8% over the past year to close yesterday’s trading session at $155.04.
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 the additional POWR Ratings for COF (Stability, Value, and Quality), click here.
Discover Financial Services (DFS)
DFS operates as 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. DFS is based in Riverwoods, Ill.
On May 18, 2021, Arab Financial Services and DFS signed a strategic network alliance agreement that is expected to increase both organizations’ global footprint. 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 $3.35 for the quarter ended June 30, 2021, representing a 379.2% 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 8.7% year-over-year to $2.90 billion for the quarter ending September 30, 2021. The stock has gained 145.7% over the past year to close yesterday’s trading session at $118.31.
DFS’ POWR Ratings reflect its 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 as well. DFS is ranked #7 in the Consumer Financial Services industry.
AXP shares were trading at $167.75 per share on Thursday morning, down $3.23 (-1.89%). Year-to-date, AXP has gained 40.01%, versus a 15.42% 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.
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