It’s been a good month for the stock market so far, and even though the Dow Jones Industrial Average (^DJI 0.07%) hasn’t seen quite the rebound that the S&P 500 (^GSPC -0.04%) and Nasdaq Composite (^IXIC 0.04%) have enjoyed, investors are still pleased. The Dow has risen 2.4% since the beginning of 2023, clawing back a fraction of its losses in the previous year.
After a strong week, the Dow looked poised to fall slightly on Friday morning, with stock index futures suggesting the tiniest of declines. Yet good news from Dow Jones Industrials components American Express (AXP 9.44%) and Visa (V 3.24%) made those potential losses smaller, and it’s even possible that the Dow could reverse course and climb when regular trading begins. Below, you’ll learn more about what AmEx and Visa said and why the two payment network providers are seeing green on Friday.
American Express gets a big lift
Shares of American Express rose between 5% and 6% in premarket trading on Friday morning. The charge card pioneer reported fourth-quarter financial results that made shareholders optimistic about its future, and investors will also get a little more cash from their stock holdings.
Many of the numbers that American Express reported suggested few signs of an imminent recession. Payment network volume rose 12% year over year to $413 billion, helping to lift quarterly revenue by 17% to $14.18 billion. The company reported opening 12.5 million new card accounts during 2022, and its engagement and retention levels were quite healthy.
One concern that AmEx and other card providers have faced is that a potential recession could hurt creditworthiness. On one hand, AmEx said that its credit metrics remain strong, as it tends to have a more affluent client base than some of its rivals in the credit card business. Yet at the same time, American Express did dramatically increase its provisions for credit losses, setting aside $1.03 billion during the quarter and contributing to a 5% drop in earnings to $2.07 per share.
Despite that concern, investors liked AmEx’s guidance for 15% to 17% revenue growth in 2023 and earnings of $11 to $11.40 per share. Add to that a 15% dividend increase to $0.60 per share each quarter, and you can see why American Express shareholders were pleased with the latest financial report.
Visa moves higher
Shares of Visa were up less sharply, rising between 1% and 2% in premarket trading. Visa doesn’t have the same kind of exposure that American Express does, but its operations showed strength as it released its fiscal first-quarter report for the period ending Dec. 31, 2022.
All of Visa’s financial results looked solid. Quarterly net revenue rose 12% year over year to $7.9 billion. Adjusted net income climbed an even healthier 17% from year-ago levels, producing adjusted earnings of $2.18 per share. Visa saw a 7% rise in payment volume overall, including an exceptionally strong 22% gain in cross-border volume. Process transaction counts were up 10% year over year.
Unlike American Express, Visa doesn’t retain any credit risk with its payment network, instead simply collecting fees from its partner card-issuing financial institutions. As a result, Visa’s numbers are much more directly correlated with economic activity, as the more that cardholders spend, the greater its fees become.
Visa has benefited from gradual reopening of international borders as the COVID-19 pandemic has progressed, and that could continue to contribute to its results in 2023 and beyond. Increasingly, Visa shareholders seem to believe the economy could avoid a recession, and that could provide further upside for the stock.
American Express is an advertising partner of The Ascent, a Motley Fool company. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.