When looking at any one particular industry, investors are often faced with more than one company to invest in. The question then becomes which stock would turn out to be the better use of their time and money. The factors one uses to determine the better investment are numerous. However…
when it comes to two credit card stocks, we have hopefully helped lent a hand.
Digital banking and payment services company Discover Financial Services (DFS – Get Rating) operates in two segments: Digital Banking and Payment Services. While the Digital Banking segment offers Discover-branded credit cards, the Payment Services segment operates the PULSE network. On the other hand, Mastercard Incorporated (MA – Get Rating) provides transaction processing and other payment-related products and services. It facilitates the processing of payment transactions, including authorization, clearing, and settlement.
The use of credit cards and other online payment methods has increased significantly over the past year, as people have relied more on the digital mode of payments amid a remote lifestyle. With gradual economic recovery this year, aided by rapid vaccination, spending on services and discretionary items has increased significantly. According to the Commerce Department, the overall consumer spending rose 0.8% in August. The growing technological innovation and rapid adoption of digital prepaid card services should drive the growth of the credit card market in the upcoming months. According to Research and Markets, the global credit card market is expected to grow at a CAGR of 3% to hit $103.06 billion in 2021.
DFS has gained 2.4% over the past month, while MA has returned 1.2%. Also, DFS’ 40.6% gains over the past nine months are significantly higher than MA’s negative returns. Moreover, DFS is the clear winner with 106.8% gains versus MA’s 1.6% returns in terms of the past year’s performance.
But which of these two stocks is a better buy now? Let’s find out.
On May 18, 2021, Arab Financial Services and DFS signed a strategic network alliance agreement expected to increase both organizations’ global acceptance footprint. Matt Sloan, the vice president of international markets at DFS, said, “By connecting with innovative payment partners like AFS, we can provide our cardholders with the global reach and localization they require.”
On September 28, 2021, MA unveiled Mastercard Installments, a unique and innovative Buy Now, Pay Later program that delivers greater choice at checkout, both in-store and online. This could help the company meet the growing consumer demand for flexible, digital-first payment options.
Recent Financial Results
DFS’ total revenue net of interest expense increased 34% year-over-year to $3.58 billion for the second quarter ended June 30, 2021. Its income before taxes grew 6.9% sequentially to $2.22 billion, and its net income increased 9.2% sequentially to $1.69 billion. Also, its EPS came in at $5.55, up 10.1% sequentially.
MA’s net revenue increased 36% year-over-year to $4.50 billion for the second quarter ended June 30, 2021. Its operating income grew 37% year-over-year to $2.30 billion, while its adjusted net income increased 41% year-over-year to $1.90 million. Also, its adjusted EPS came in at $1.95, up 43% year-over-year.
Past and Expected Financial Performance
DFS’ revenue and EPS have grown at CAGRs of 13.3% and 35.5%, respectively, over the past three years. Analysts expect the company’s revenue to increase 8.8% for the quarter ended September 30, 2021, and 8.9% this year. Its EPS is expected to increase 39.6% for the quarter ended September 30, 2021, and 15.4% for December 31, 2021. Moreover, its EPS is expected to grow at a rate of 55.8% per annum over the next five years.
On the other hand, MA’s revenue and EPS have grown at CAGRs of 6% and 17.3%, respectively, over the past three years. The company’s revenue is expected to…
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