瑞信-美股-金融业-2019年Q1美国专业金融盈利预览-2019.4-34页.pdf

Specialty Finance 1Q19 Earnings Preview April 2019 RESEARCH ANALYSTS Moshe Orenbuch+1 212-538-6795 moshe.orenbuchcredit- James Ulan+1 212-538-8235 james.ulancredit- Hoang Nguyen+1 212-325-3357 hoang.nguyencredit- DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Credit Cards 3 American Express(AXP,Underperform,$105 PT)Source:Company data,Credit Suisse research,FactSet Spend growth strategy:We forecast$305 Bn worldwide billed business in the quarter:$199 Bn US billed business(+9%y/y)and$106 Bn international billed business(+5%y/y),as the growth momentum has slowed due to the lapping of one-time surge in growth last year and FX headwind.Discount revenue:We forecast$6.3 Bn in discount revenue,and a calculated discount rate of 2.07%,as we expect discount rate to continue to shift down y/y,though the pressure seems to be abating due to the lapping of multiple headwinds.Balance growth and lending strategy:We forecast$80 Bn in card member loans(+10%y/y)and$57 Bn charge card receivables(+5%y/y).We look forward to mgmts comments on the companys ability to maintain loan and receivable growth momentum in face of modestly slowing momentum in billed business.Expenses:We forecast$7.4 Bn in total expenses,which include$1.7 Bn in marketing and business development expense.Forecasted card rewards and services are$2.5 Bn and$488 mil respectively;we believe our rewards estimate has generally been above consensus.Company continues to believe rewards and services expenses will grow faster than revenue going forward,thus putting pressure on margin.This makes sense given continued intense rewards competition,particularly in light of the recent renewal with Delta.We note that in 2Q19,AXP could see a one-time rewards cost due to revaluation of Delta miles within MR.We look forward to mgmts comment on how this renewal will impact rewards expense going forward.Credit quality:We forecast card loan net losses of$453 mil(2.24%),up 25 bps y/y as the mix continues to shift towards non-cobrand products which have higher loss rate and the big 2017 vintage has now started to season.We forecast charge card losses of$249 mil(1.75%).Our forecasted reserve rate for card member loans is 2.82%($120 mil build).The bigger question is 2019 provision,given the relatively vague guidance of 30%growth.Consensus 2019 provision growth is only 20%.Others:Comments on deposit pricing and NIM will be interesting,as online banks have stopped raising deposit rates since mid January.Incremental comments on plan to operate domestically in China,potential financial impact from the recently revamped Gold card and broad consumer health will also be interesting.What to look for on the 1Q19 call Our est 1Q EPS is$1.91,8c lower than cons,most likely due to our higher marketing and business development costs,as mgmt expects customer engagement costs to be more spread out in 2019(in 2018 this was more back-end weighted).Our 2019/2020 EPS estimates are$7.85/$8.60.We are raising our TP to$105,which implies shares can trade at 13x our 2019 EPS estimate,or relative P/E to the S&P of 77%.EPS and Price Target In millions USD unless otherwise noted CS EstsQ/QY/YConsensusEPS$1.91(18%)3%$1.99Discount Revenue6,304(2%)7%6,307Effective Discount Rate2.07%(2)bps(1)bpsNet Card Fees9132%10%920Net Interest Income2,0652%12%2,084Total Net Revenues10,5020%8%10,462Marketing&Business Development1,679(8%)25%1,574Cardmember Rewards2,503(1%)7%Cardmember Services488(1%)19%Adj.Operating Expenses2,7717%2%Total Operating Expenses7,442(3%)8%7,461Provisions945(1%)22%931Net Income1,613(18%)1%1,695Share Repurchase Amount90019%#DIV/0!Dividend Amount328(1%)9%Charge Card Receivables($B)572%5%NCO Rate1.75%34 bps26 bpsNCO$24926%25%Cardmember Lending Managed Loans($B)80(2%)10%NCO Rate2.24%26 bps25 bpsNCO$45314%27%Reserve Build(Release)120Per Share$0.11Reserve Rate2.82%Total Billed Business($B)305(1%)8%7%US Billed Business($B)199(3%)9%International Billed Business($B)1062%5%4 Capital One Financial(COF,Outperform,$105 PT)Source:Company data,Credit Suisse research,FactSet Balance and purchase volume growth:We forecast$101 Bn outstanding Domestic card loans(+2%y/y growth)and$87 Bn in Domestic purchase volume(+10%y/y growth).This is in spite of COF still being quite active in direct mail and mgmt seeing opportunity for growth in the transactor segment,though it could take quite a while for these new accounts to translate into actual loan growth.Auto originations:We forecast$57 Bn auto loans(+3%y/y)and expect auto loan growth to be stable going forward.Mgmt is seeing increasing competition in auto.Credit quality:We forecast 1Qs domestic card loss rate at 5.07%(+43 bps q/q)with$1.3 Bn in losses,as loss seasonally ticks up in 1Q from 4Q.Our estimated auto loss rate is 1.52%(-1 bps y/y,-46 bps q/q)with$215 mil in losses,which demonstrates the good performance of auto at COF.Loan reserve:We model$34 mil in domestic card reserve build for a 5.07%reserve rate(+33 bps q/q).In Consumer,we forecast$8 mil build for a 1.87%reserve rate(flat bps q/q).In Commercial,we release$6 mil in reserves for a reserve rate of 1.10%of loans(+3 bps q/q).Capital return:We forecast no share repurchases in 1Q(as COF has used up its authorization under 2018 CCAR)and$187 mil of dividends paid for a payout ratio of 14%.Now that 2019 CCAR is approaching,we expect COF to be able to return substantially more capital this time,as mgmt is very comfortable with the companys capital position.Others:Mgmts comments on when COF will benefit from the technology transformation in terms of efficiency ratio will be interesting,given the company negatively surprised investors last quarter in spending(COF has relatively less visibility compared to peers in terms of opex).Another important question is when the company will accelerate organic growth in credit cards and when investors could start to see the bottom line benefit of COFs pursuit of card transactors given the company is still quite active in direct mail card marketing.Incremental details on CECL impact and the Walmart portfolio are also welcome.What to look for on the 1Q19 call Our 1Q estimate is$2.76,4c above cons.We are higher than cons in rev and opex(we still expect extra spending due to new Savor card acquisitions and national bank marketing,though not as elevated as seen in 4Q),but lower in provision.Our new 2019/2020 EPS estimates are$10.40/$12.40.We are raising our target price to$105,which is 10 x our 2019 EPS or a 2019 forward relative PE to the S&P of 60%.We rate COF Outperform.EPS and Price Target In millions USD unless otherwise noted CS EstsQ/QY/YConsensusEPS$2.7648%4%$2.72Net Interest Income5,8240%2%5,792Net Interest Margin6.98%2 bps5 bps7.20%Non-interest Income1,2354%4%1,201Net Revenues7,0591%2%7,040Marketing Expense443(47%)7%443Operating Expenses3,706(10%)4%3,616Pretax Preprovision Income3,35316%1%Loan Loss Provision1,627(1%)(3%)1,679Pretax Earnings1,72639%4%1,705NI Available to Common1,29146%(1%)1,306Share Repurchases Amt0(100%)(100%)Total Common Dividend Paid1870%(4%)Overall Efficiency Ratio52.5%(642)bps79 bps51.7%Overall Reserve Build(Release)-2Managed Loss Rate2.70%4 bps12 bpsCredit Card Loss Rate4.93%32 bps(10)bpsConsumer Loss Rate1.57%(42)bps36 bpsAuto Loss Rate1.52%(46)bps(1)bpsCommercial Loss Rate0.13%3 bps1 bpsTotal Managed Loans237,494(3%)(4%)239,746Auto Loans56,5650%3%Domestic Credit CardManaged Loans100,998(6%)2%Loss Rate5.07%43 bps(19)bpsLosses$1,3017%(1%)Reserve Build(Release)3499%(42%)Reserve Rate5.07%33 bps(31)bpsDomestic Purchase Volume86,717(10%)10%5 Discover(DFS,Outperform,$90 PT)Source:Company data,Credit Suisse research,FactSet Credit quality outlook:We forecast$625 mil of card losses or 3.48%of card loans(3.34%total)in 1Q.We forecast$107 mil of total reserve build,resulting in$3.1 Bn in total allowance(3.54%reserve rate).Our 1Q loan loss provision of$846 mil is$32 mil higher than consensus.Mgmt is still seeing solid credit trend for credit card quality.Balance growth:We forecast 8%total loan growth and 8%card loan growth in 1Q(high end of 6-8%2019 total loan growth guidance),as we expect card to continue its solid growth,which should offset the stagnant growth in personal lending.We expect sales volume of$33 Bn(7%y/y).NIM:1Q NIM and mgmts comments on deposit pricing will be interesting,particularly the rate outlook has flattened and DFS is the most asset-sensitive among our card companies.Given DFS deposit pricing pattern in 1Q and that the company will still benefit from December rate hike,1Q NIM could come in higher than consensus.Rewards cost:We forecast$429 mil in rewards costs and rewards as a%of sales volume of 130 bps in 1Q(lowest among all the quarters given 1Qs 5%category is grocery which is relatively less populatr)and 133 bps for the full year(2019 guidance is 132-134 bps).Mgmts comments on rewards competition have indicated steady at a high level,though not as intense as a few years ago.Expenses:We forecast$199 mil in marketing expense($4 mil lower than cons)and$1 Bn in total operating expenses($17 mil lower than cons)in 1Q19.We believe expenses relative to DFS efforts to boost acceptance in Western Europe will be more spread out this year.Capital return:We forecast$450 mil in share repurchases and$129 mil in dividends for a 1Q payout ratio of 87%.What to look for on the 1Q19 call Our 1Q EPS estimate is$2.03,1c above consensus,as a result of higher rev and provisions.Our 2019/2020 EPS estimates are$8.75/$9.65.Our new target price is$90,which is 10 x our 2019 EPS or a relative PE to the S&P of 61%.We maintain our Outperform rating on DFS.EPS and Price Target In millions USD unless otherwise noted CS EstsQ/QY/YConsensusEPS$2.03(0%)12%$2.02Interest Income2,848(2%)11%Net Interest Income2,290(1%)9%2,263Discount and Interchange Revenue691(8%)7%Rewards Cost(429)(10%)10%Rewards%of Sales1.30%2 bps3 bpsNet Discount and Interchange Revenue262(5%)3%Total Net Revenues2,778(1%)8%2,755Marketing Expense199(14%)8%203Operating Expenses1,026(8%)6%1,043Pretax Preprovision Income1,7523%9%1,719Loan Loss Provision8466%13%815Pretax Earnings9061%6%890Net Income Available to Common669(2%)4%665Share Repurchase Amount450(3%)(23%)Dividends Paid129Managed Loans89,008(2%)8%87,927Loss Rate3.34%26 bps25 bpsReserve Build(Release)107(6%)(7%)Per Share$0.25Reserve Rate3.54%18 bps23 bpsCredit CardsManaged Loans70,889(3%)8%Loss Rate3.48%25 bps16 bpsLoss$6259%16%Reserve Build(Release)1095%4%Reserve Rate3.72%25 bps29 bpsSales Volume($B)33(11%)7%Rewards Costs/Sales Volume1.30%2 bps3 bpsNet interest margin10.35%(1)bps12 bps9.97%6 Synchrony Financial(SYF,Outperform,$44 PT)Source:Company data,Credit Suisse research,FactSet Revenues and balance growth:We forecast quarterly NIM of 16%(SYFs guidance is 15.75%-16%NIM for the full year).Going forward,given SYF has no immediate need for funding(particularly after selling the Walmart portfolio),the company may actually lower deposit rate or not replace expired debts.This could create upside to NIM going forward.We expect balance growth of 14%y/y in 1Q(4%organic),as we havent seen a significant step up in growth after last years tightening of subprime underwriting.RSA:We forecast 4%RSAs as a%of average receivables(from 3.80%in 4Q).We note that seasonally,RSA as%of average receivables will rise in 2H,as loss rate tends to be lower in 2H than 1H.This year,RSA in 2H will also be up from 1H as the Walmart portfolio(with lower RSA)goes away in 2H.Credit quality and reserve build:We model NCO of 6.10%(+56 bps q/q)or$1.37 Bn of loans in 1Q.Mgmt expects 1Q loss rate to increase from 4Q loss rate by the high end of 40-70 bps range,though QTD data suggest that expectation could be a bit conservative.Our 1Q reserve rate decreases by 3 bps q/q to 6.87%with a$304 mil release,due to Walmart reserve release.Capital return:We model SYF returning$700 mil in repurchases(most of which due to existing authorization and a small amount due to Walmart reserve release)and$145 mil in paid dividends in 1Q19.SYF is in a very strong capital position relative to peers and will be able to continue high shareholder return going forward,particularly after selling Walmart portfolio.Others:Investors will interested in hearing updates on the Paypal Credit portfolio performance,as well as mgmts strategies for growth going forward now that the renewal risk is behind the company.Details on plan for the Gap portfolio will also be useful,given Gaps decision to split the company.What to look for on the 1Q19 call Our 1Q EPS is$0.87(adjusted for the impact of Walmart reserve release),2c below consensus,most likely due to our lower NIM.Our provision is adjusted for Walmart reserve release,hence is much higher than consensus.Our 2019/2020 EPS estimates are$4.25/$4.80.Our new target price is$44,which is 10 x our 2019 EPS.We reiterate our Outperform rating.EPS and Price Target In millions USD unless otherwise noted CS EstsQ/QY/YConsensusEPS$0.87$0.89Retail Card Revenue3,557-1%15%Payment Solutions Revenue616-2%10%CareCredit Revenue541-4%5%Interest and fees on loans4,714-1%13%Total Interest Income4,791-2%13%Interest Expense5542%38%550Net Interest Income4,238-2%10%4,297NIM16.0%(7)bps(6)bps16.2%Retailer Share Arrangements(RSA)8975%25%881RSA/Average Receivables4.0%Net Interest Income after RSA3,340-4%7%Operating Expenses1,052-2%6%1,075Provision for Loan Losses1,5678%15%1,193Earnings before Taxes813-20%-4%1,184Net Operating Earnings61627%55%954Total Purchase Volume33,181-18%12%Total Ending Receivables89,135-4%14%88,587Retail Card61,963-5%18%Payment Solutions17,865-3%8%CareCredit9,307-2%6%NCO Rate6.10%56 bps(4)bpsNCO$1,37110%14%Reserve Build(Release)-304-249%-285%Reserve Rate6.87%(3)bps(50)bpsTotal Average Yield21%Retail Card23%30 bps(24)bpsPayment Solutions14%15 bps9 bpsCareCredit23%(20)bps(32)bpsTOP PICK for CARDS Networks 8 Visa(V,Outperform,$184 PT)Source:Company data,Credit Suisse research,FactSet Visa Europe:Now that the technical migration in Europe is done,we believe this should allow Visa to accelerate growth in Europe in the coming quarters through additional products and pricing.We note that Visa Europe performance has now exceeded mgmts initial expectation.Currency:For the quarter ending March,the dollar index tracked 6-7%above year-ago levels,thus we expect FX headwind for international volume growth coming into the quarter,and the magnitude of this headwind could be greater than seen in last quarter.Spending:V has been growing at a noticeably slower rate than MA(e.g.Vs cross-border volume growth was 7-11%for the past four quarters while MAs cross-border volume g