Federal Reserve policymakers have stated that they expect to raise interest rates in March. Four Fed officials revealed that they felt it was time for the U.S. central bank to begin removing support from a strong economy, especially when inflation is at its highest level in four decades.
According to the rating agency Fitch Ratings, the operating environment for financial institutions is expected to improve amid a steady, albeit slow economic recovery. On top of it, the rising interest rates are also seen as a positive aspect for financial firms.
Therefore, we think the financial stocks Visa Inc. (V), American Express Company (AXP), and The Travelers Companies, Inc. (TRV) might be reasonable additions to one’s watchlist. These stocks are components of the Dow Jones Industrial Average index, which reached an all-time high in early January. Although the index is facing volatility amid the selling pressure in the stock market, these financial stocks are outperforming.
Visa Inc. (V)
V is a payments technology company operating worldwide. The company helps in digital payments among consumers, businesses, and government entities, offering services such as VisaNet, its transaction processing network.
On January 14, V announced its new platform Visa Acceptance Cloud (VAC), which is set to enable payment service providers, point of sale (POS) manufacturers, and Internet of Things (IoT) players to move their payment processing software to the cloud, thereby making it universally accessible. The company reported VAC to already be live across six geographies, which should add to the company’s revenue stream.
On December 20, V announced that it had completed the acquisition of Currencycloud, a platform that enables banks and fintech companies to provide innovative foreign exchange solutions for cross-border payments. The acquisition is expected to provide V, and Currencycloud customers enhanced transparency, control, and flexibility, and it should build upon the existing strategic partnership between the two companies.
V’s net revenues increased 24.1% year-over-year to $7.06 billion in the fiscal first quarter ended December 31. Operating income rose 24.2% from the prior-year quarter to $4.78 billion. Non-GAAP net income and non-GAAP EPS improved 24.8% and 27.5% from the same period the prior year to $3.90 billion and $1.81, respectively.
Street EPS estimate for the fiscal year 2022 of $7.15 reflects a rise of 21% from the prior year. Likewise, Street revenue estimate of $28.76 billion for the same year indicates a 19.3% year-over-year improvement. Moreover, V has an impressive surprise earnings history as it has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 15% to close yesterday’s trading session at $231.54. It has gained 6.8% year-to-date.
American Express Company (AXP)
AXP operates through the three broad segments of Global Consumer Services Group; Global Commercial Services; and Global Merchant and Network Services. The company provides charge and credit payment card products and travel-related services internationally.
On January 27, AXP declared a quarterly dividend of $8,875 per share, equivalent to $8.87500 per related Depositary Share, on its 3.550% Fixed Rate Reset Noncumulative Preferred Shares, Series D, payable on March 15. This reflects upon the company’s ability to pay back its shareholders.
On December 10, AXP announced that in a partnership with credit services provider Nova Credit, it had expanded credit access to immigrants from several countries. The new digital capability enables people from nine countries to use their credit history to apply for AXP’s personal American Express® Cards. The company expects to extend this service to include more countries in 2022, adding to its revenue stream.
AXP’s total revenues net of interest expense increased 29.9% year-over-year to $12.15 billion in the fiscal fourth quarter ended December 31. Net income and EPS came in at $1.72 billion and $2.18, registering an improvement of 19.5% and 23.9% from the prior-year quarter, respectively.
Analysts expect AXP’s EPS to increase 17.2% year-over-year to $11.36 for the fiscal year 2023, while Street revenue estimate of $56.41 billion for the same year reflects a 12.3% year-over-year increase. Additionally, AXP has beaten consensus EPS estimates in each of the trailing four quarters, which is impressive.
AXP’s shares have gained 52.8% over the past year and 12.5% year-to-date to close yesterday’s trading session at $184.04.
The Travelers Companies, Inc. (TRV)
TRV provides a range of commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals globally. The company operates through the three business segments of Business Insurance; Bond & Specialty Insurance; and Personal Insurance.
On January 12, TRV announced the expansion of its offerings pertaining to the field of telematics auto insurance through the launch of IntelliDrivePlus™. The offering is already available in Arkansas, Nebraska, and Ohio and should add to the company’s revenue.
For the fiscal fourth quarter ended December 31, TRV’s total revenues increased 7.3% year-over-year to $9.01 billion. Core income and core income per share rose 2.1% and 5.9% from the prior-year period to $1.29 billion and $5.20, respectively.
The consensus EPS estimate of $3.40 for the quarter ending March 2022 indicates a 24.5% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $8.03 billion reflects an improvement of 6.6% from the prior-year period. In addition, TRV has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 24.1% over the past year and 10% year-to-date to close yesterday’s trading session at $172.07.
V shares were unchanged in after-hours trading Friday. Year-to-date, V has gained 5.39%, versus a -5.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
3 Outperforming Financial Stocks to Watch on the Dow Jones Index: Visa, Travelers, and American Express StockNews.com
