Visa Inc (V), American Express Company (AXP), Discover Financial Services (DFS): These Financial Stocks Beat the Odds Again

The payments industry has seen significant secular changes, from cash-based payments to check-based. Now, card-based payments are witnessing another secular change towards mobile payments. With the change in the process, some of the payments industry players reported better-than-expected performance for the second quarter. Let’s look at the factors that led these companies to report better-than-expected results.

Revenue driven beat

Visa Inc (NYSE:V) is the world’s leading card issuer and card network company. It has been the source of some of the best innovations in the payments industry. It once again surprised investors and analysts. The company reported both metrics above consensus estimates. On revenue of $3 billion, the company reported earnings per share (EPS) of $1.88. Each was 4% ahead of the respective estimate.

Profits surged 17% for Visa Inc (NYSE:V), and strength in revenue was seen in data processing and international transaction fees. Operating expenses were marginally lower than expected. Processed transactions grew 14%, while payments volume remained healthy at 11% growth. July growth remained a bit slower, which management attributed to the Ramadan holidays.

Looking at the favorable trends, I believe the future is bright for this leading payments industry player. Management also increased its guidance for the rest of the year. Going forward, Visa Inc (NYSE:V)’s investors should keep an eye on the level of share repurchases, as a greater level of share repurchases, coupled with margin expansion, lower level of incentives, and a higher data processing net revenue yield could lead the stock upwards.

Tax rate driven beat

American Express Company (NYSE:AXP) is another payments industry player that reported its performance for the second quarter. Besides offering charge and credit card payment products, American Express Company (NYSE:AXP) offers travel-related products to its customers. It reported EPS of $1.27, which was $0.05 per share ahead of the estimate on revenue of $8.24 billion, which remained $80 million behind expectation. Much of the bottom line beat was driven by a lower tax rate (30% actual vs. 33% estimated) and better expense management.

The reported revenue for the second quarter surged 4% over the prior year, largely due to higher net interest income. Discount revenue surged 6%, with 7% year over year growth in global billed business. Operating expenses were moderately above the prior year, but below expectations. While salaries and benefits remained flat, much of the improvement compared to expectations was due to other expenses.

Overall, revenue growth was weak in the most recent quarter and the future isn’t very bright as well. So, the company will need to spend more if it needs to grow its revenue. Apart from increased spending, American Express Company (NYSE:AXP) investors must keep an eye on the credit conditions as unemployment rises and the legal and regulatory risk involved in the credit card business, including the Department of Justice suit.  Among other headwinds for American Express Company (NYSE:AXP) is the European Union cap on interchange rates. It could affect the company’s Global Network Services business. If the aforementioned factors come into play, you should expect a decline in the billed business, which can bring the stock price down.