U.S. card companies are expected to post the slowest revenue growth in seven quarters, as consumers tighten their purse strings and avoid spending on luxury and big-ticket items.
Revenues at Visa Inc (V.N), Mastercard Inc (MA.N) and American Express Co (AXP.N) are expected to be up 9%, 11% and 15%, respectively, for the three months ended Dec. 31 compared with a year earlier, marking the smallest year-over-year increase since the first quarter of 2021, according to Refinitiv data.
“Consumers are giving up more expensive brands and shifting to more affordable purchases,” said Moshe Katri, analyst at Wedbush.
Card firms pocket a small percentage of the dollar value of transactions and stand to lose out on fees if customers pivot away from buying luxury items.
The typically cheerful holiday quarter, which usually sees heavy discretionary spending as consumers spend on their loved ones, also proved a dampener.
“Consumers have increasingly limited discretionary spending power, and limited needs for general merchandise following the pandemic purchasing surge,” said Marshal Cohen, chief retail industry adviser for market research company NPD Group.
AmEx, however, is in a far better spot on the back of its affluent customer base. The company remains one of the “top picks” due to its focus on high-end customers, according to MoffettNathanson analysts Eugene Simuni and Lisa Ellis.
The company’s delinquency rates were ticking up but remains below pre-pandemic levels, the analysts added, but deterioration of overall consumer credit quality is expected to continue through mid-year.
Card companies as a whole are heading into a murkier 2023, with several signs of an economic slowdown having emerged in recent months.
Shares in Visa, Mastercard and Amex closed last year between 3% and 10% lower.
Mastercard and Visa are set to report quarterly results on Thursday, with AmEx rounding off the season on Friday.
WALL STREET SENTIMENT
** American Express – 15 of 31 brokerages rate the stock “buy” or higher, 13 “hold” and three “sell” or lower; their median PT is $170
** Visa – 35 of 40 brokerages rate the stock “buy” or higher, four “hold” and one “sell”; their median PT is $260
** Mastercard – 38 of 42 brokerages rate the stock “buy” or higher, four “hold”; their median PT is $407.90