Visa (V), American Express (AXP), and Mastercard (MA) have continually alerted me with juicy shorter-term chart patterns as of late, so I decided it’s time to take a closer look at the fundamental side of things on credit card companies, and I found some good stuff.
In the Mastercard example, credit volume is on the rise and international growth is a big part of their strategy; more than 60% of their transaction volume is done outside the United States, of which around 30% is in Asia and Latin America. The Asia and Latin America markets, by the way, grew 30% for Mastercard in 2010 alone. If you believe in emerging market growth, there may be a play here.
In the U.S., marginally improving consumer credit seems to be helping; consumer loan charge-off rates and consumer loan delinquency rates have dropped over the past 24 months, from roughly 10% down to 8% and 6.5% to 4% respectively. What's important to note, however, is that over the same time, outstanding revolving credit has also dropped.
Share Repurchase Programs
Mastercard’s share repurchase programs are well known, and on April 12 Mastercard announced they will double the program from $1 billion to $2 billion. American Express also has further 2011 share repurchase plans, although last week’s earnings announcement did not go into details to my knowledge. Share repurchase programs on the margin should be viewed positively by investors. Rating agency Fitch last week reaffirmed the A+ investment grade rating on American Express.
Capital One also stepped on the mount last week (April 21)and unleashed solid earnings, closing the week up 6.5% and right at fresh 2.5 year highs.
Visa and Mastercard have not yet announced their Q1 earnings but are up for bat on May 5th and May 3 respectively.
After announcing earnings last week, American Express is still holding up well and looking to break above a key resistance area around $47 on the weekly chart.
Over the past few weeks Visa has managed to break out of a long-term narrowing trading range where it had lingered. It has moved to the upside. Next up is Visa’s earnings announcement.
Mastercard, too, will announce its earnings next week. Much like Visa, it is currently breaking higher and out of a long-standing albeit wide trading range.
Volume on all three charts by the way leaves something to be desired. Given that the entire equities rally from the bottom of 2009 has come on decreasing volume, however, makes one wonder if the lack of volume really matters until markets can float (or sink) freely again.
On the charts the credit card companies look enticing as well. Mind you most of them have already doubled or tripled off the early 2009 lows — as such, to some extent I feel my analysis here fits the "better late than never" slogan. However, the seemingly solid fundamentals, institutional investors being still underweight the financial sector, and nice looking charts make a compelling story, if only for the time being.