We all have heard that phrase, and most people would agree that it's not wise to rack up large amounts of credit card debt. However, the average American household has acquired slightly under $16,000 in credit card debt alone. With approximately 610 million credit cards in use across America, card holders average over 3.5 cards each. 98% percent of America's revolving debt is acquired in credit cards. With today's instant gratification society, let’s take a look at how credit card companies perform as an investment.
Although Discover Financial Services (NYSE:DFS) is only about 1/3 the size of its next competitor, it still shows a market cap of $19.3 billion. Not bad for such a small company. The company has had very sporadic revenues for the past ten years, including a 125% decrease in 2012. The company's capital expenditures have increased annually since 2009. Earnings per share have only decreased twice in the past decade, and increased nearly 10% last year. The stock doesn't appear to be discounted very much as it shows a 4.2% FCF yield.
Luckily for Discover, they are one of only two closed-loop credit card networks in America. After teaming up with Wal-Mart Stores, Inc. (NYSE:WMT) and other third party systems, Discover is catching up to the likes of Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA). Hopefully this will widen its narrow economic moat. The only other closed-loop credit card company is American Express Company (NYSE:AXP).
American Express' market cap is over $67 billion, and represents over $50 million of credit. Earnings per share have increased every year for ten years with the exception of 2008. The company boasts 97 million cards in circulation worldwide. The company has seen capital expenditures increase by 54% in the last two years and 34% just last year. The company is valued slightly cheaper than Discover posting a 5.5% FCF yield.
At around $520/share MasterCard is not quite priceless, but its stock price is higher than the previous two companies. Capital expenditures have increased approximately 17% in the past year with FCF increasing for half a decade. Its market cap is only 3.5 billion more than American Express', serves approximately 22,000 financial institutions worldwide.
The company boasts $176 million in credit and $129 million in debit. MasterCard is the #2 payment system in the U.S.. The company does not issue credit cards, but rather markets the MasterCard and Maestro brands. With more than 31 million locations accepting their card worldwide, it's established in 210 countries and territories. MasterCard does show the lowest FCF yield at 4.1%, slightly under Discover. The only thing left for MasterCard to do is surpass Visa - now that my friends, would be priceless.