Visa, Mastercard profits are expected to be higher due to travel recovery

Analysts said Visa Inc, MasterCard and American Express could see an increase in cross-border volume as more companies resume business travel and people plan vacations.

“So far, despite the macro, you’re seeing relatively stable consumers,” said Wedbush Securities analyst Moshe Khadri, adding that monthly data from Visa and MasterCard showed that payments or cross-border volumes were not affected.

“Basically, the sky isn’t falling, at least not yet.”

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

A report from travel insurance aggregator Squaremouth.com suggests that steady demand for travel, combined with inflation, means that U.S. travelers are spending 35% more this fall than they did in 2021.

American Airlines, United Airlines Holdings and Delta Air Lines forecast strong gains for the rest of the year.

Chart: Revenue Change for H1 2022

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

But high inflation, as in the US, combined with rising interest rates can weigh on consumer spending, sending the economy into recession.

According to U.S. banking institutions that reported their results earlier this month, the bleak economic outlook has not yet deterred financially healthy consumers from spending.

American Express is more sensitive to interest rate hikes because credit cards are a major part of the company’s business.

“AmEx’s (credit) loss rates are firmly under control. Its core customers have higher incomes and are expected to be less affected by inflation,” said BofA Securities analyst Mihir Bhatia.

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

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

Chart: US card issuers’ stock performance YTD

Foundations

Company Refinitiv Earnings Refinitiv EPS

Assessment

American Express had $13.50 billion (up 24% to $2.41 billion).

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Visa $7.55 billion (up 23% to $1.87

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MasterCard $5.65 billion (up 13% to $2.56

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Wall Street Sentiment

**

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

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

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