The credit services industry suffered because of the near-zero interest rate environment and lower consumer spending amid the pandemic. However, the sector has witnessed a solid recovery from increased credit transactions. Also, the Federal Reserve approved a 0.25 percentage point rate hike, the first increase in more than three years. Moreover, the possibility of aggressive interest rate hikes to control multi-decade high inflation should help the credit services companies generate solid revenues. Therefore, both Visa Inc. (V) and American Express Company (AXP) should benefit.
V facilitates digital payments among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a transaction processing network. AXP provides charge and credit card products and travel-related services worldwide. It operates through three segments: Global Consumer Services Group; Global Commercial Services; and Global Merchant and Network Services.
V has gained 2.26% over the past year and AXP has rallied 29.3%. Which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On March 10, 2022, V announced it had acquired Tink. Charlotte Hogg, CEO of Visa Europe, said, "Digital tools are driving the new economy, and the combination of Visa and Tink will support greater choice and quality of digital money services as the lines between commerce, financial services and payments continue to converge."
On March 10, 2022, AXP’s Board of Directors approved a $0.09 – or approximately 20%– increase in the regular quarterly dividend on the company’s common stock. The dividend was raised to $0.52 per common share, payable on May 10, 2022, to shareholders of record on April 8, 2022.
Recent Financial Results
V’s net revenue increased 24% year-over-year to $7.10 billion for the fiscal first quarter ended December 31, 2021. The company’s non-GAAP net income grew 25% year-over-year to $3.90 billion. Also, its non-GAAP EPS came in at $1.81, up 27% year-over-year.
AXP’s total revenues net of interest expense increased 30% year-over-year to $12.15 billion for the fourth quarter ended December 31, 2021. The company’s net income increased 20% year-over-year to $1.72 billion. Also, its EPS came in at $2.18, up 24% year-over-year.
Past and Expected Financial Performance
V’s revenue and EPS have grown at CAGRs of 6.2% and 9.1%, respectively, over the past three years. Analysts expect V’s revenue to increase 16.5% for the quarter ending June 30, 2022, and 19% in fiscal 2022. Its EPS is expected to increase 18.1% for the quarter ending June 30, 2022, and 20.5% in fiscal 2022. Moreover, the company’s EPS is expected to grow at a rate of 18.4% per annum over the next five years.
On the other hand, AXP’s revenue and EPS have grown at CAGRs of 5.8% and 8.2%, respectively, over the past three years. The company’s revenue is expected to increase 20.2% for the quarter ending June 30, 2022, and 18.5% in fiscal 2022. However, its EPS is expected to decline 14.3% for the quarter ending June 30, 2022, and 3.3% in fiscal 2022. AXP’s EPS is expected to grow at a rate of 23.1% per annum over the next five years.
Profitability
AXP’s trailing-12-month revenue is 1.72 times what V generates. However, V is more profitable, with a gross profit margin and net income margin of 97.07% and 51.59%, respectively, compared to V’s 70.32% and 18.40%.
Furthermore, V’s ROA of 13.03% is higher than AXP’s 4.24%.
Valuation
In terms of forward non-GAAP P/E, V is currently trading at 31.45x, 61% higher than AXP’s 19.54x. Moreover, V’s forward non-GAAP PEG of 1.72x is 212.7% higher than AXP’s 0.55x.
So, AXP is relatively affordable here.
POWR Ratings
V has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, AXP has an overall rating of C, which translates to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
V has a grade of B for Quality. This is justified given its trailing-12-month net income margin of 51.59%, 823% higher than the industry average of 5.59%. On the other hand, AXP has a Quality grade of C, consistent with its 18.40% trailing-12-month net income margin, 39.9% lower than the industry average of 30.59%.
Of the 52 stocks in the Consumer Financial Services industry, V is ranked #7, while AXP is ranked #20.
Beyond what I’ve stated above, we have also rated the stocks for Growth, Momentum, Sentiment, Value, and Stability. Click here to view all the V ratings. Also, get all the AXP ratings here.
The Winner
The credit services industry is well-positioned to benefit from the upcoming interest rate hikes. So, V and AXP should benefit. However, it is better to bet on V now because of its higher profitability and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Consumer Financial Services industry here.
V shares were trading at $225.33 per share on Friday afternoon, up $3.56 (+1.61%). Year-to-date, V has gained 4.15%, versus a -4.80% 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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