Visa and Mastercard earnings expected to be higher due to travel recovery

Analysts said that as more companies resume business trips and people plan vacations, Visa Inc, Mastercard and American Express are likely to see a jump in volume across borders.

“So far, despite the macro economy, you see a fairly stable consumer,” said Moshe Katri, an analyst at Wedbush Securities, adding that monthly data from Visa and Mastercard show that payments or volumes across borders have not been affected.

“Basically, the sky is not falling, at least not yet.”

Cross-border volumes are a measure of travel demand and reflect spending on cards outside the country of issue.

Sustained travel demand, combined with inflation, has caused American travelers to spend 35% more this fall than they did in 2021, according to a report from travel insurance aggregator Squaremouth.com.

American Airlines, United Airlines Holdings and Delta Air Lines also forecast strong gains for the rest of the year, a sign that travel demand is offsetting concerns about exorbitant airline ticket prices.

Chart: Earnings change for the first half of 2022

Context

Card companies usually make more money when rates go up because they usually charge a percentage of the dollar value of transactions.

But high inflation can weigh on consumer spending when accompanied by higher interest rates, as in the United States, which could push the economy into recession.

According to the US banking giants who announced their results earlier this month, the bleak economic outlook has not yet deterred the spending of consumers who are still financially healthy.

American Express, which is more sensitive to rising interest rates because credit cards are a major part of the company’s business, remains in a good position.

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“The (credit) loss rates at AMEX have remained under control,” said Mihir Bhatia, an analyst at Bank of America Securities.

American Express will announce its quarterly results on Friday, followed by Visa and MasterCard next week.

AmEx shares are down 12%, while Mastercard and Visa shares are down 17% and 14%, respectively, this year.

Chart: US card issuer stock performance to date

establish

Refinitiv Revenue Refinitiv EPS

Estimation

American Express $13.50 billion (up 24% $2.41

yo)

Visa $7.55 billion (+23% $1.87

yo)

MasterCard $5.65 billion (up 13% $2.56

yo)

Wall Street Morale

**

American Express – 15 out of 28 brokers rate the stock as “Buy” or higher, 11 “Hold” and 2 “Sell”; Average PT $170 – Data Refinitiv

** Visa – 36 out of 40 brokers rate the stock as “Buy” or above and 4 as “Hold”; Average PT $257

** Mastercard – 35 out of 39 brokers rated the stock as “Buy” or higher, 4 “Hold” and 2 “Sell”; Average PT $405

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