American Express Company (AXP) just hit a new record high on the equity market. By most accounts, the company had a good third quarter. The stock’s been upgraded by the Street with rising earnings estimates and share price targets.
Management said that its credit quality and top-line growth were the reasons for a substantial 15% gain in 2013 third-quarter earnings per share. Revenues grew six percent to $8.3 billion.
The stock appreciated another 10% since management reported its third-quarter earnings. The company’s forward price-to-earnings (P/E) ratio is approximately 15.5 and its trailing P/E is around 20.
In spite of coming in below Wall Street’s earnings consensus, Discover Financial Services (DFS) has been holding up well. The position is only two points from its all-time record high.
The most recent quarter saw the company increase its potential loan loss provision to $333 million, up from $136 million last year, due to lower recoveries on older unpaid accounts. The Street saw this as an aberration, and 2013 and 2014 earnings estimates were increased along with higher share price targets.
MasterCard Incorporated (MA) has been a stunning wealth creator over the last five years. Even since the beginning of this year, the stock has appreciated close to 50%, which is a superb achievement. The company’s market value is now close to $90.0 billion.
Visa Inc. (V) is a bit larger than MasterCard in terms of stock market capitalization. It’s doubled in value since the beginning of 2012. Visa, MasterCard, and American Express are institutional favorites.
Visa’s third-quarter earnings stumbled in its latest quarter—the first sign of a crack in what has been a top wealth creator over the last few years.
Visa’s total revenues for the three months ended September 30, 2013 were $2.97 billion, up nine percent from $2.73 billion in the same quarter last year.
Diluted earnings per share dropped to $1.85 per share from $2.47 in the comparable quarter, mostly due to a large tax provision.
To assuage the marketplace, Visa announced a new $5.0-billion share buyback program for fiscal 2014. This goes a long way to help pay for its recently increased quarterly dividend.
Like the other credit card companies, Visa is still a great business and brand. But the company’s current valuation is questionable, given the stock’s recent run. This position is definitely due for a break. (See “My Six Favorite Growing Dividend Payers.”)
The one thing the company still offers is the expectation for double-digit growth. It’s a tough thing to come by these days, so the stock market is paying for it.
Visa’s fiscal 2014 class A earnings-per-share growth is forecast to be in the mid- to high teens. Annual revenues are expected to be in the low double digits for the fiscal year.
After a major correction, Visa’s share would be worthy of consideration, but not currently. According to Thomson/First Call, the stock is trading approximately 10% below Wall Street’s median price target.