Visa stock retreated early Tuesday following reports that the Dow Jones payments giant will soon face an antitrust suit from the U.S. Department of Justice. Meanwhile, stocks for card companies are shaping up as their monthly metrics continue to improve.
The Justice Department plans to sue Visa (V), alleging that it monopolized the U.S. debit-card business, Bloomberg reported late Monday. The lawsuit filing could come as early as Tuesday.
According to unnamed sources, the DOJ will claim Visa illegally hindered rivals through exclusive agreements and other tactics. The New York Times added that the DOJ will accuse Visa of penalizing its customers for attempting to use other payment-processing services.
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Citi on Tuesday said it now prefers Mastercard (MA) over Visa due to the anticipated lawsuit, The Fly reported. Analyst Andrew Schmidt said the DOJ investigation has been ongoing since 2021, so the news is not really a surprise. The firm believes the lawsuit will create a gradual regulatory overhang for Visa, and legal developments “may stretch out with variable outcomes.” Schmidt wrote that Visa can likely work through this, but Citi switched its network preference to Mastercard as a result.
Citi maintained a buy rating and a 319 price target on Visa stock.
Credit Card Metrics Improve
Meanwhile, monthly credit card metrics continued to improve in August, according to a SeekingAlpha report over the weekend.
Net charge-offs declined for the month while delinquencies moved up by only 2 basis points, according to data from eight major companies including Capital One (COF), American Express (EXP), JPMorgan (JPM), Citigroup (C), Bank of America (BAC), Discover (DFS), Synchrony (SYF) and Bread Financial (BFH).
The average net charge-off rate, or percentage of credit card loans that banks consider uncollectible, fell for the fifth month in a row, sliding to 4.16% in August from 4.24% in July. However, net charge-off rates are still up from 3.45% last year and 3.58% five years ago, respectively.
The average delinquency rate rose to 3% in August from 2.98% in July. Still, delinquencies peaked in January and have seen six consecutive monthly declines. The average delinquency rate for August 2023 was 2.74%, and stood at 2.67% in August 2019 prior to the coronavirus pandemic.
Jefferies analyst John Hecht noted that year-over-year changes in net-charge offs and delinquencies is ebbing. Meanwhile, the payment rate of 31.72% has declined by about 24 basis points month-over-month and year-over-year. But those are still elevated compared with pre-pandemic historical levels of around 20.6%. Hecht said it is “a sign that the consumer remains resilient.”
Visa, Payments Stocks
Visa stock slumped nearly 4% early Tuesday on the antitrust news. Shares of Visa trade below a 290.96 buy point for a 25-week flat base. The stock initially broke out on Sept. 17 and hit a record high of 293.07 before easing.
Visa is up 10.9% this year through Monday’s close and trading near record levels.
Mastercard stock is trading in a buy zone, above a 490 buy point for a cup base after its Sept. 12 breakout. MA stock jumped 16.6% in 2024 and is at all-time highs.
Dow Jones component American Express looks the strongest of the bunch. AXP stock is extended above a flat base buy zone and has spiked 43% in 2024 to record highs.
Discover is consolidating below a 147.61 buy point, matching its all-time high.
Capital One shares are closing back in on a 153.35 buy point for a consolidation. Shares tested the buy point on Sept. 20 but haven’t been able to close above the entry.
PayPal Holdings (PYPL) is extended above a 70.66 entry for a consolidation and rallied nearly 27% this year.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
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