EARNINGS PREVIEW: US Card Lenders Struggle Processors Better
Sat, Oct 11, 2008
TAKING THE PULSE: Credit-card issuers such as American Express Co. (AXP) and Capital One Financial Corp. (COF) are struggling amid shrinking volumes, rising financing costs and a slow down in consumer spending. That has prompted boosts to loan-loss reserves, cutting credit off from problem borrowers and tightening restrictions on new cards. Visa Inc. (V) and MasterCard Inc. (MA) are better positioned because they don't issue lines of credit, instead handling transactions on behalf of lenders, collecting a fee for their services and leaving the credit risk to the banks.
COMPANIES TO WATCH:
Capital One Financial Corp. - Oct. 16
Wall Street Expectations: Analysts polled by Thomson Reuters expect earnings of $1.01 a share on revenue of $4.3 billion. A year ago, Capital One had earnings from continuing operations of $2.09 and revenue of $3.77 billion.
Key Issues: Observers say the credit crisis will hit Capital One's earnings harder than its competitors since the company gleans a high proportion of its revenue from its U.S. credit-card business. Innovest StrategicValue Advisors said Capital One is at risk because its business model includes charging high fees for missed payments, giving the company high exposure to subprime credit- card holders and low payment rates.
American Express Co. - Oct. 20
Wall Street Expectations: Analysts anticipate earnings of 65 cents a share on revenue of $7.37 billion. A year ago, Amex had earnings from continuing operations of 90 cents a share on revenue of $7.95 billion.
Key Issues: American Express' well-off customers have been cutting their spending and even its higher-rated borrowers - those with credit scores of 650 to 750 - are seeing strains from the credit crisis. Analysts are also concerned the company's primary funding source, fixed-income markets, has been facing unprecedented disruption.
Visa Inc. - Oct. 29
Wall Street Expectations: The company is seen posting profits of 56 cents a share on revenue of $1.68 billion. Visa went public in March.
Key Issues: Analysts at Calyon noted a shift to debit from credit spending in recent weeks, a trend that benefits Visa, which has a strong position in the debit market. In report released earlier this month J.P. Morgan noted the benefits of Visa's debit business, but reduced its earnings estimates for the company, citing slowing U.S. credit growth and lower international purchase volume growth.
MasterCard Inc. - Nov. 3
Wall Street Expectations: Analysts forecast earnings of $2.27 a share on revenue of $1.28 billion, compared with $2.31 and $1.08 billion, respectively, a year ago.
Key Issues: MasterCard has backed its projections for 2008 double-digit revenue growth, but that growth won't match 2007's 22%. Fox-Pitt, which recently raised its investment rating on the company's shares, said slower consumer spending and the stronger dollar have created short-term problems for MasterCard, but the company still has long-term earnings-growth potential.
Source : http://www.money.cnn.com
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