As American Express (AXP) heads into the second half of the year, the effects of Costco Wholesale (COST) switching to Visa (V) /Citigroup (C) cards should start to take effect.
Costco, an Action Alerts PLUS holding, switched cards about a month ago after negotiations with AmEx did not work out. This meant AmEx's quarterly results included a gain from the sale of the U.S. Costco card portfolio, approximately $1.1 billion pre-tax. But the gain was partially offset by a $232 million restructuring charge. The company is expecting adjusted earnings of $5.40 to $5.70 per share for fiscal 2016 and earnings of at least $5.60 per share for 2017.
Analysts with Jefferies see more uncertainty in the future for AmEx. "While 2016 was increased and 2017 guidance was maintained, we believe there is limited visibility given the various headwinds facing the company, such as the reverberating effects of the termination of the Costco partnership," the analysts said in a note Thursday.
The analyst team at Pacific Crest said they remain neutral on the stock, saying the path to sustainable high-single-digit or better earnings per share remains unclear.
"The pace and ability to recoup spending from Costco members, or win new partners given the heightened level of competition in the credit card space, makes it difficult to predict how much of the gap AmEx can fill," said Pacific Crest Securities analysts in a research note Wednesday.
RBC Capital Markets analysts echoed that sentiment as they believe the impact from the loss of Costco will be more significant going forward. That being said, the analysts raised the 2016 core EPS estimate to $4.91 from $4.84, while lowering their 2017 EPS estimate to $4.72 from $5.10. AXP stock was down 2% in midday trading.
This comes as rival MasterCard (MA) -- a Trifecta Stocks holding -- announced a major acquisition a week ahead of its next earnings release. The global payments and technology company has agreed to acquire 92.4% of London-based VocaLink Holdings for approximately $920 million. MasterCard stock was sinking slightly on the news.
In a statement, MasterCard outlined three key payments technology platforms that VocaLink operates: BACS, the Automated Clearing House (ACH) enabling direct credit and debit payments between bank accounts; Faster Payments, the real-time account-to-account service enabling payments via mobile, Internet and telephone; and, LINK, the U.K. ATM network.
The analyst team at Keefe, Bruyette and Woods said in a research note Thursday that they view the move as a positive for MasterCard as this acquisition of assets has "fairly substantial potential, particularly as it relates to gaining a bigger foothold in the U.K. market." They said in 2015, VocaLink reported revenues of 182 million euros and generated 77 million euros in earnings before interest, taxes, depreciation and amortization.
The analysts also noted that from a financial aspect, the deal is dilutive and the benefit will likely be more long-term in nature. "If the deal closes in early 2017, the company currently estimates the transaction would be 5 cents dilutive to each of 2017 and 2018 earnings per share," said the Keefe, Bruyette and Woods analysts.
MasterCard CEO Ajay Banga said in a conference call Thursday morning that Brexit had no impact on the negotiations and has not really played into this decision at all.
Trifecta Stocks portfolio managers Chris Versace and Bob Lang said in a note to subscribers Friday that they continue to like MasterCard's longer-term prospects "given that just 15% of global payments are occurring digitally and another $8 trillion can be converted to digital payment volumes over the next five years."
Meanwhile, AAP holding Visa is set to report earnings after the bell Thursday. Shares of the company were dropping ahead of the quarterly results.
In a research note Wednesday, Credit Suisse analysts said mail volume was up 4% in June.
"Visa card offers had the highest network share of solicitations at 40% of offers, down 1 pps from May and up 6 pp from a year ago," the analysts noted.
They added that mail volume remains an important barometer of competitiveness, as well as which brands are most heavily marketed.
Bloomberg data are tracking adjusted earnings estimate of $0.67 per share on revenue of $3.64 billion. Analysts will be looking for any indication of a post-Brexit slowdown.
Another payment platform, PayPal Holdings (PYPL) , is also reporting when the markets close Thursday. The AAP holding was trading stronger on Wednesday after industry observer Tom Noyes mentioned a potential deal between a network player and PayPal, noted Keefe, Bruyette and Woods analysts in a research note. The stock was holding relatively flat during the trading session Thursday morning.
Regarding the note by Noyes, the analysts said, "We think it's far too early to precisely estimate an economic impact given the uncertainty that this will actually occur."
Looking toward the second-quarter results, Wall Street is forecasting adjusted earnings of $0.36 per share on revenue of $2.59 billion, according to Bloomberg data.
Cramer and Mohr said in a note to subscribers on Friday that "in each of its three quarters as a public company (third and fourth quarter of 2015 and first quarter of 2016), PYPL has exceeded consensus EPS by $0.02." In a Thursday post, the portfolio managers recommended taking a profit on the stock as it trading around all-time highs.
