Top 3 Consumer Credit Stocks for 2022

Consumer finance companies have benefited from industry tailwinds over the past 20 months as people embraced online payment methods in response to the COVID-19 pandemic. And because this trend is set to continue, we believe well-known consumer finance companies Capital One Financial Corporation (COF), Discover Financial Services (DFS) and Synchrony Financial (SYF) should continue to grow. So, let’s discuss these names in more detail.

The consumer finance industry has been booming for the past few years as more and more people are opting to conduct their financial transactions online. Since the spread of the COVID-19 pandemic, the industry has seen unprecedented growth as people shift to contactless cashless transactions. The trend will likely continue as consumer finance companies continue to invest heavily in innovative, technology-driven, web-based financial products and services to keep up with changing consumer trends. Indeed, global consumer credit is expected to grow over a 5% CAGR to $1.31 trillion by 2026.

Investors’ bullish sentiment towards the industry is evident in Financial Select Sector SPDR ETFs (XLF) 29.8% returns over the past year.

So, against that backdrop, here are the top consumer credit stocks that we believe are well positioned to capitalize on growing demand: Capital One Financial Corporation (COF), Discover financial services (DFS) and Synchrony Financial (SYF).

Capital One Financial Corporation (COF)

COF in McLean, Virginia, is a financial services holding company that provides diversified financial products and services in the United States, Canada and the United Kingdom. It operates in three segments: Credit Card: Consumer Banking; and Commercial Bank.

On November 17, 2021, COF announced a Data Access Agreement with Envestnet | Yodlee, a data aggregation and analysis platform. The deal is expected to result in an improved customer experience, increased user control and access.

On November 9, 2021, COF launched Venture X, its new class of travel cards. Venture X offers various travel benefits, including enhanced travel earnings for customers, unlimited access to Capital One lounges and Priority Pass lounges worldwide, flexible mile redemption and annual credit up to $300 for reservations made on Capital One Travel. This should boost COF’s revenue and profit margins in the near term.

COF’s total net revenue increased 6% year-on-year to $7.80 billion during its fiscal third quarter, ended September 30, 2021. Its net income improved 29.2% year-on-year annually to reach $3.1 billion. Its profit before provision was $3.60 billion, up 7% from the same period last year. And its net interest margin increased 46 basis points from the year-ago quarter to 6.35%.

A consensus revenue estimate of $30.15 billion for its fiscal year 2021 (ending December 2021) represents 5.7% year-over-year growth. The consensus EPS estimate of $26.85 for its fiscal 2021 represents 363.7% year-over-year growth. The company has an impressive track record of earnings surprises; it has exceeded consensus EPS estimates in each of the past four quarters.

Over the past year, the stock has gained 40.9% to close yesterday’s trading session at $160.56.

COF POWR Rankings reflect this promising prospect. The company has an overall rating of B, which translates to Buy in our proprietary rating system. POWR ratings rate stocks on 118 separate factors, each with its own weighting.

COF has a B rating for value and sentiment. Within the Consumer Financial Services industry, it is ranked #8 out of 52 stocks. To view additional POWR (Growth, Dynamics, Stability, and Quality) ratings for COF, Click here.

Discover financial services (DFS)

DFS is a banking and financial holding company that provides digital banking and payment services. Through its subsidiaries, the Riverwoods, Illinois-based concern offers a wide range of services, including credit cards, personal loans, home loans, private student loans, consumer loans, deposit products, and more.

Last November, DFS unveiled a full schedule of 5% cash back bonuses for 2022. Cardholders will be rewarded on daily purchases at all places they shop. This rewards program should promote customer loyalty and attract new customers.

Last September, DFS partnered with Phood’s meal delivery program to expand its college payment solutions. “Discover’s latest step to simplify payments on a college campus will provide more food options for students,” said Jason Hanson, senior vice president of global business development at Discover. This partnership should enable Discover to develop new revenue channels.

During its third quarter of fiscal 2021, which ended September 30, DSF’s total revenue, net of interest expense, increased 2.3% year-on-year to $2.78 billion. Its net income rose 41.5% from its value a year ago to $1.09 billion. And the company’s EPS was up 44.5% from its value a year ago at $3.54.

Analysts expect DFS revenue for its fourth quarter of fiscal 2021 (ending December 2021) to be $3 billion, a 6.2% year-over-year increase . The Street expects the company’s EPS for the quarter to be reported to be $3.64, representing a 23.6% year-over-year increase . The company has an impressive track record of earnings surprises; it has exceeded consensus EPS estimates in each of the past four quarters.

DFS shares have gained 29.6% in price over the past year and 10.4% over the past month.

DFS has an overall rating of B, which translates to Buy in our proprietary rating system. It is ranked No. 6 out of 52 stocks in the consumer financial services sector. Click here to view DFS Ratings for Growth, Value, Momentum, Quality, Stability, and Sentiment.

Synchrony Financial (SYF)

SYF in Stamford, Connecticut, is a leading consumer financial services company. It offers a wide range of consumer banking products, debt cancellation products and deposit products. The company has three sales platforms: Payment Solutions, Retail Card and CareCredit.

This month, SYF partnered with Pawlicy Advisor, a pet insurance marketplace, to provide pet healthcare financing options for veterinary care through CareCredit. This first-class solution is expected to be a hit with pet owners, increasing SYF’s customer base.

Last December, SYF invested in Skipify, a digital payments company, to transform its digital commerce and ecosystem. The partnership is expected to enable SYF to provide a simplified transaction process for cardholders and a seamless customer experience, driving its growth through innovative product offerings.

In October 2021, Synchrony partnered with Prime Healthcare to offer new financing options using CareCredit credit cards to patients at Prime Healthcare hospitals. This should allow SYF to enter the healthcare market.

During its third quarter of fiscal 2021, which ended September 30, 2021, SYF’s net income increased 264.5% year-over-year to $1.14 billion. Its net interest income was $3.66 billion, up 5.8% from the same period last year. Its EBIT increased 264.1% from the prior year quarter to $1.50 billion. Additionally, the company’s EPS rose 284.6% from its value a year ago at $2.

Analysts expect SYF’s revenue to grow 2% year-over-year to $3.73 billion in its fourth quarter of fiscal 2021 (ending December 2021). Its EPS is expected to rise 18.5% from the same period last year to $1.47 in the quarter to be reported. The company has an impressive track record of earnings surprises; it has exceeded consensus EPS estimates in each of the past four quarters.

Over the past year, SYF has gained 25.1% in price to close yesterday’s trading session at $48.67.

SYF has a B rating for quality. Among the 52 stocks in the consumer financial services sector, it ranks 12th. Click here to see additional POWR ratings for Growth, Momentum, Value, Stability and Sentiment for SYF.

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COF shares were trading at $157.84 per share on Tuesday afternoon, down $2.72 (-1.69%). Year-to-date, the COF has gained 8.79%, versus a -3.60% rise in the benchmark S&P 500 over the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing stocks.


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