Discover Financial Services (NYSE:DFS) is another competitor that American Express must face. Discover Financial Services (NYSE:DFS) has come on strong of late. Previously a part of Morgan Stanley until just before the recession, it has been expanding its programs, planning to begin offering home equity loans as its push into direct banking has helped shore up its balance sheet.
Discover Financial Services (NYSE:DFS) has also brought down its delinquency rate as it was forced to tighten on customer credit during the recession. Its acquisition of Diners Club in 2008 from Citigroup Inc (NYSE:C) has kick started its expansion into international markets. While American Express has the brand power now, Discover is taking steps to make those much needed strides over the long term.
An unparalleled advantage
With all this in mind, this brings us to a company that may end up rising above them all. Visa Inc (NYSE:V) just recently announced a very good quarter. Revenue jumped 17% from a year ago, and earnings beat estimates by $0.09 a share. Management has maintained its forecast throughout the rest of the year.
You have to also consider Visa Inc (NYSE:V)’s sparking fundamentals. Visa has a 5 year sales growth rate of 23.76%, while it carries essentially no debt with a total debt to equity of 0.0. It has raised its dividend every year, and currently yields 0.68% on recent share prices. Visa is doing this while paying out only 13.8% of its earnings as dividends.
While the credit card sector as a whole has really excelled in the last year, Visa Inc (NYSE:V)’s immunity to consumer credit risk combined with its clean balance sheet put it in perhaps the best position to reward shareholders long term. Visa also has the easiest path to international growth as a payment processing company. The Visa name is on various card makers, while American Express Company (NYSE:AXP), Capital One, etc. are motsly limited to its own brands.
Bottom line:
With society slowly moving towards plastic, credit card and financial service companies are poised to prosper over the long term. These companies have tightened up on who they lend to, and are now starting to reap some benefits. American Express Company (NYSE:AXP) is the top name among lenders, but don’t sleep on Capital One and Discover. However, given the lack of a credit risk and less debt, Visa may make the best choice of all in the long term.
The article Should American Express Be in Your Portfolio? originally appeared on Fool.com and is written by Justin Pope.
Justin Pope has no position in any stocks mentioned. The Motley Fool recommends American Express and Visa. Justin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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