Which Credit Card Stocks have the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

Stocks with improving earnings metrics are worthy of your extra attention. Click here to discover our CHEAT SHEET stock picks now!

Here’s your Cheat Sheet to how the top 5 credit card stocks rank via earnings trends:

Capital One Financial Corp. (NYSE:COF): Current Price $56.99

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 19,130 17,860 15,950 19,070 18,520
Diluted EPS ($) 3.97 -0.21 0.74 6.01 6.80

Capital One has been growing earnings, though revenue has remained more-or-less flat on a yearly basis.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 4,706 4,569 5,500 5,670 6,390
Diluted EPS ($) 1.77 0.85 2.72 0.16 2.01

But things have been humming along nicely on the quarterly revenue front. Unfortunately, earnings are quite another matter, being highly inconsistent. Not exactly our cup of tea…

American Express (NYSE:AXP): Current Price $59.78

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 31,540 31,920 26,540 30,000 32,280
Diluted EPS ($) 3.34 2.32 1.54 3.35 4.12

Amex seems to have hit bottom in 2009, but thereafter has improved both revenue and earnings steadily every year.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 8,146 8,317 8,188 8,515 8,420
Diluted EPS ($) 1.03 1.02 1.07 1.15 1.09

Quarterly earnings grew nicely between the December 2011 and June 2012 quarters, but appear to have met a roadblock in the latest quarter. We’ll keep looking…

Mastercard Incorporated (NYSE:MA): Current Price $521.00

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 4,068 4,992 5,099 5,539 6,714
Diluted EPS ($) 7.96 -1.94 11.16 14.05 14.85

There’s solid sales growth here and obviously Mastercard is growing its market share. Earnings are also up since 2008.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 1,818 1,728 1,758 1,820 1,918
Diluted EPS ($) 5.63 0.17 5.36 5.55 6.17

These are nice numbers, with things certainly looking up over the last four quarters. Revenue is up 11%, but earnings have zoomed over 36 times during this period…

Visa, Inc. (NYSE:V): Current Price $158.27

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 6,263 6,911 8,065 9,188 10,420
Diluted EPS ($) 0.58 2.04 2.71 3.57 2.22

Visa has achieved substantial revenue improvements every year since 2008, with earnings growing nicely until 2011. EPS during 2012 has been somewhat muted, however.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 2,383 2,547 2,578 2,565 2,731
Diluted EPS ($) 0.88 1.05 1.34 -1.92 1.75

Unfortunately, the June 2012 quarter is a blot on the quarterly record. Thus, Visa fails the litmus test of growing earnings quarter-over-quarter…

Discover Financial Services (NYSE:DFS): Current Price $38.55

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 6,957 7,986 8,241 8,550 8,984
Diluted EPS ($) 1.90 2.38 1.22 4.06 4.46

A creditable performance on both revenue and earnings, though 2010 saw a dip in profitability.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Nov. 30, 2011 Feb. 29, 2012 May. 31, 2012 Aug. 31, 2012 Nov. 30, 2012
Revenue ($) in millions 2,167 2,196 2,189 2,289 2,310
Diluted EPS ($) 0.95 1.18 1.00 1.21 1.07

Though sales have grown over the last three quarters, earnings have fluctuated, and Discover does not make our investment watch list.

Conclusion

No prizes for guessing that Mastercard romps home the winner in this “E-Squared” investment analysis. Its performance is quite easily head-and-shoulders above its peers as earnings continue to rise quarter-over-quarter.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute – click here to discover our CHEAT SHEET stock picks now!