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 expected to continue, we think well-known consumer finance companies Capital One Financial Corporation (COF), Discover Financial Services (DFS), and Synchrony Financial (SYF) should keep growing. So, let's discuss these names in more detail.
The consumer finance sector has been thriving over the past few years because people are opting increasingly to complete their financial transactions online. Since the spread of the COVID-19 pandemic, the industry has witnessed unprecedented growth as people have shifted toward no-contact cashless transactions. The trend will likely continue as consumer finance companies continue investing heavily in innovative, tech-driven, and web-based consumer financial products and services to keep up with the changing consumer trends. Indeed, global consumer finance is expected to grow over a 5% CAGR to $1.31 trillion by 2026.
Bullish investor sentiment surrounding the industry is evident in the Financial Select Sector SPDR ETF's (XLF) 29.8% returns over the past year.
So, given this backdrop, here are the top Consumer Finance Stocks that we think are well-positioned to capitalize on the growing demand: Capital One Financial Corporation (COF), Discover Financial Services (DFS), and Synchrony Financial (SYF).
Capital One Financial Corporation (COF)
COF in McLean, Va., 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 Banking.
On Nov. 17, 2021, COF announced a data access agreement with Envestnet | Yodlee, a data aggregation and analytics platform. The agreement is expected to result in enhanced customer experience, increased user control, and access.
On Nov. 9, 2021, COF launched Venture X, its new class of travel cards. Venture X provides various travel perks, including customers enhanced earn on travel, unlimited access to Capital One Lounges and Priority Pass Lounges worldwide, flexible miles redemption, and annual credit up to $300 for bookings made on Capital One Travel. This should boost COF's revenues and profit margins in the near term.
COF's total net revenues increased 6% year-over-year to $7.80 billion in its fiscal third quarter, ended Sept. 30, 2021. Its net income improved 29.2% year-over-year to $3.1 billion. Its pre-provision earnings came in at $3.60 billion, up 7% from the same period last year. And its net interest margin rose 46 basis points from the prior-year quarter to 6.35%.
A $30.15 billion consensus revenue estimate for its fiscal 2021 (ended December 2021) represents 5.7% year-over-year growth. The $26.85 consensus EPS estimate for its fiscal year 2021 represents363.7% year-over-year growth. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 40.9% to close yesterday's trading session at $160.56.
COF's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
COF has a B grade for Value and Sentiment. Within the Consumer Financial Services industry, it is ranked #8 of 52 stocks. To see additional POWR Ratings (Growth, Momentum, Stability, and Quality) for COF, click here.
Discover Financial Services (DFS)
DFS is a bank holding and financial holding company that provides digital banking and payment services. Through its subsidiaries, the Riverwoods, Ill.-based concern provides a wide range of services, including credit cards, personal loans, home loans, private student loans, consumer lending, deposit products, etc.
Last November, DFS revealed a complete 5% cashback bonus calendar for 2022. Cardmembers will be rewarded on everyday purchases at all places they shop. This rewards program is expected to promote customer retention and attract a new customer base.
Last September, DFS partnered with Phood's Meal Delivery Program to expand its college payment solutions. "Discover's latest step into simplifying payments on a college campus will provide increased food options for students," stated Jason Hanson, senior vice president of global business development at Discover. This partnership should allow Discover to develop new channels of revenue.
In its fiscal 2021 third quarter, ended September 30, DFS' total revenues net of interest expense increased 2.3% year-over-year to $2.78 billion. Its net income increased 41.5% from its year-ago value to $1.09 billion. And the company's EPS increased 44.5% from its year-ago value to $3.54.
Analysts expect DFS's revenue for its fiscal 2021 fourth quarter (ended December 2021) to be $3 billion, representing a 6.2% rise year-over-year. The Street expects the company's EPS for the about-to-be-reported quarter to come in at $3.64, representing a 23.6% increase year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the four trailing quarters.
Shares of DFS have gained 29.6% in price over the past year and 10.4% over the past month.
DFS has an overall B grade, which translates to Buy in our proprietary rating system. It is ranked #6 of 52 stocks in the Consumer Financial Services industry. Click here to see DFS Ratings for Growth, Value, Momentum, Quality, Stability, and Sentiment.
Synchrony Financial (SYF)
SYF in Stamford, Conn., is a premier 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-in-class solution is expected to be a hit among pet parents, thereby increasing SYF's customer base.
Last December, SYF invested in Skipify, a digital payments company, to transform its digital commerce and ecosystem. The partnership should allow SYF to provide a simplified transaction process for the cardholders and a seamless customer experience, boosting its growth through innovative product offerings.
In October 2021, Synchrony partnered with Prime Healthcare to offer new financing options using CareCredit credit cards for the patients at Prime Healthcare's hospitals. This should enable SYF to penetrate the healthcare market.
In its fiscal 2021 third quarter, ended Sept. 30, 2021, SYF's net earnings increased 264.5% year-over-year to $1.14 billion. Its net interest income came in at $3.66 billion, up 5.8% from the same period last year. Its EBIT rose 264.1% from its prior-year quarter to $1.50 billion. In addition, the company's EPS increased 284.6% from its year-ago value to $2.
Analysts expect SYF revenues to improve 2% year-over-year to $3.73 billion in its fiscal 2021 fourth quarter (ended December 2021). Its EPS is estimated to increase 18.5% from the same period last year to $1.47 in the about-to-be-reported quarter. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the four trailing quarters.
Over the past year, SYF gained 25.1% in price to close yesterday's trading session at $48.67.
SYF has a B grade for Quality. Among the 52 stocks in the Consumer Financial Services industry, it is ranked #12. Click here to see the 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, COF has gained 8.79%, versus a -3.60% rise in the benchmark S&P 500 index during the same period.
Capital One Financial Corporation (COF) is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do's and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
