We recently compiled a list of the 10 Best Credit Card Stocks to Buy Now. In this article, we are going to take a look at where U.S. Bancorp (NYSE:USB) stands against the other credit card stocks.
The market for credit card issuance services has expanded significantly over the last several years. At a CAGR of 9.2%, it will grow from $478.09 billion in 2023 to $522.22 billion in 2024, according to the Business Research Company. Over the coming years, a significant expansion in the market size for credit card issuance services is anticipated. At a CAGR of 8.3%, it will increase to $717.7 billion in 2028, as per the research. Contactless payment usage, data security concerns, cryptocurrency emergence, embedded finance, customization, and personalization are all factors contributing to the growth in the projection period.
The credit card market is still changing, mirroring changes in customer preferences and general economic conditions. According to the Q4 2023 Quarterly Credit Industry Insights Report (CIIR), the average credit card debt per borrower at the end of 2023 was $6,360, a 10% rise YoY. This resulted in a total of $1.13 trillion in credit card debt in the United States the same year. Moreover, the average amount owed by households in the 90th percentile is $11,210, with higher-income households often having larger loads.
According to TransUnion, credit card usage continues to rise, with 167.2 million users expected by mid-2023, representing a substantial rise over the last three years. Furthermore, according to the Federal Reserve Bank of San Francisco, credit cards accounted for 31% of all payments in 2022, although less than 10% of Americans typically utilized cash, according to a December 2023 Forbes Advisor survey.
As per the Federal Reserve Board, credit card delinquency rates have been rising gradually and will reach 3.1% by the end of 2023, the highest level since 2011. Additionally, charge-offs rose in Q2 2024 from 4.16% to 4.38%, a record high of 12.5 years that hasn’t been seen since Q4 2011. Meanwhile, according to Forbes Advisor, the average credit card interest rate in March 2024 was 27.89%, putting financial strain on people with balances.
In the future, digital payment methods are expected to gain popularity; according to a survey conducted in August 2023, more than half of customers preferred digital wallets over traditional cards. This change shows that credit card companies will continue to innovate, even as concerns about interest rates and debt levels persist.
Overall, as we have also mentioned in our article, “7 Best American Bank Stocks To Buy According to Hedge Funds,” the U.S. market for digital banking platforms was estimated at $1.04 billion in 2024 and is projected to grow at a CAGR of 9.63% to reach $2.04 billion by 2031.
Looking forward, according to a report, credit card spending is predicted to increase in the mid-single digits by 2024, while balances will fall to the mid-to-high single digits after a substantial rise since 2022. If labor markets are steady, credit performance measures are expected to decline during 2024 and stabilize by early 2025. Despite lower inflation, key problems include resumed student debt payments, high interest rates, and growing living costs.
Yanni Koulouriotis, CFA, Vice President – Global FIG stated:
“Overall, DBRS Morningstar expects a less favorable operating environment for credit card issuers in 2024 as consumer dynamics shift and are less of tailwind to credit card issuer performance. While we expect weaker financial performance in 2024 compared to 2023, we still expect performance to be supportive of current credit ratings.”
Methodology:
We sifted through holdings of credit card ETFs and online rankings to form an initial list of 20 credit card stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stock’s market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
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U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Investors: 48
One of the biggest regional banks in the US, U.S. Bancorp (NYSE:USB) offers a wide range of financial services and has branches in about 26 states, mostly in the West and Midwest. The bank provides a wide range of services, such as credit cards, mortgages, trust and wealth management, retail and commercial banking, and other payment options.
It is the biggest non-GSIB in the United States. Its operating efficiency and equity returns over the last 15 years are matched by a few domestic competitors.
The USB card business has been steadily expanding. Card revenues represented 14.9% of total non-interest income as of June 30, 2024, up 4.9% from the same period in 2023. By the end of June 30, 2024, credit card loans accounted for 31.5% of all loans, up from 28.4% on that date in 2023, demonstrating its growing attention to the credit card industry and its strategic alliances, such as those with Greenlight Financial Technology and Edward Jones.
The U.S. Bank Smartly Savings and Visa Signature Card are two new credit card products that U.S. Bancorp is introducing to improve its credit card portfolio. Competitive interest rates up to 4.1% APY are available on the Smartly Savings account, and up to 4% cash back on all purchases can be earned with the Smartly Visa Signature Card. Together, these products are made to maximize savings and benefits.
Ebrahim Poonawala of Bank of America has maintained his Buy rating on the company and increased the price target to $53 from $49.00. He grounds this on the company’s solid Q2 EPS, better-than-expected revenue growth, and assurance in NII projections. He draws attention to the stock’s competitively advantageous value, which is supported by a varied income stream and a strong dividend yield.
Artisan Value Fund stated the following regarding U.S. Bancorp (NYSE:USB) in its fourth quarter 2023 investor letter:
“Banks were well represented among our top Q4 performers as the Treasury market rally drove big gains in the bank stocks. U.S. Bancorp (NYSE:USB), PNC Financial Services (PNC) and Bank of America—the three banks we hold in the portfolio—were each among our top five contributors to return. When bank stocks sold off in Q1 due to fears of contagion following Silicon Valley Bank’s failure, we took advantage of the market dislocation by purchasing top-10 US banks USB and PNC at what were, in our view, cheap prices. USB and PNC are banks we have known for years. They are well managed and well capitalized. As large banks, they were less impacted by the turmoil that affected smaller institutions as depositors sought the safest places to store their money. The recent rebound is an example of how our approach of investing in out-of-favor businesses can lead to alpha. USB and PNC are not immune from industry-wide headwinds from higher deposit costs, pressured net interest margins and fleeing deposits. However, we did not see these banks having a similar level of risk, with respect to uninsured deposits and unrealized losses, which contributed in varying degrees to the collapses of other banks in March 2023. As investors, we cannot avoid risk. However, we are willing to take risk if we are being compensated appropriately.”
Andreas Halvorsen’s Viking Global is the largest shareholder in the company, with 25,404,913 shares worth $1.008 billion.
Overall USB ranks 10th on our list of the best credit card stocks to buy. While we acknowledge the potential of USB as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than USB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.