On The Fly: What to watch in credit card space earnings reports
American Express (AXP) is scheduled to report quarterly results on January 18, while Visa (V) and MasterCard (MA) are expected to report on February 1. What to watch for: 1. OUTLOOK: During the company's last earnings call, American Express raised its FY17 EPS view to $5.80-$5.90 from $5.60-$5.80, and said it was on track to cut $1B in costs by the end of the year. On a regulatory filing earlier this month, however, the company said that based on its understanding of the Tax Cuts and Jobs Act, it estimates significant impacts to Q4 and FY17 earnings, as well as future periods. "We estimate the overall impacts of the Tax Act will reduce earnings for the fourth quarter of 2017 by approximately $2.4B and thus we expect to report a net loss for the fourth quarter of 2017. Due to the impacts of the Tax Act, we expect full year 2017 earnings per share to be below our $5.80 to $5.90 guidance range," the company stated. Meanwhile, during MasterCard's last earnings call, the company said it sees FY17 net revenue at high end of low-double digit growth, FY17 GAAP net revenue growth in the mid-teens, FY17 adjusted operating expenses growth in the top end of high-single digits, and FY17 GAAP operating expenses growth in the high end of low-double digits. Visa reported that it sees FY18 EPS growth in the mid-40s on GAAP nominal dollar basis. 2. TAX REFORM: Last week, Nomura Instinet analyst Bill Carcache said he estimates the tax reform charge will bring American Express' CET1 ratio to 9.2% in Q4, but the company may need to maintain a level of no less than 11% if it is to pass the Federal Reserve's stress tests and sustain its buyback program. As such, the analyst told investors he thinks American Express will likely suspend its buyback program in the first half of 2018, and expects the stock to underperform in 2018. Meanwhile, Wedbush analyst Moshe Katri said last month that the new tax reform will mean potential benefits for Visa and MasterCard, as they pay the majority of their taxes domestically and have large cash balances held offshore. 3. DIVIDEND: On December 4, MasterCard raised its quarterly dividend 14% to 25c from 22c per share. Additionally, the company announced that the Board of Directors approved a new share repurchase program, authorizing it to repurchase up to $4B of its Class A common stock. The new share repurchase program will become effective at the completion of the company's previously announced $4B share repurchase program. The company has approximately $1.5B remaining under the current program authorization. 4. BLOCKCHAIN: Back in November, American Express announced the introduction of blockchain-enabled, business-to-business cross-border payments. The American Express FX International Payments business is working with Ripple, provider of enterprise global blockchain solutions, to make blockchain payments commercially available, reducing the time and cost of settlement, while maintaining the level of security that American Express customers know and expect.