Credit card metrics for February remained consistent with recent trends, with the exception of Bread Financial (BFH), which saw delinquency and net charge-off rates higher than its pre-pandemic levels. Analysts at Baird recommend taking advantage of weakness in Capital One Financial (COF) and American Express (AXP) due to their healthy credit quality, despite the broader sell-off in financials. Jefferies noted that seasonal factors saw receivables decline 1% M/M, while non-prime cohorts are more affected by the current macro/inflationary environment than prime cohorts.
Wolfe Research maintains its Underweight stance on issuers Capital One (COF), Discover Financial (DFS), Synchrony Financial (SYF), and Bread Financial (BFH) following February’s credit data, with BFH being the only issuer experiencing higher delinquency and net charge-off rates. Analyst Bill Carcache notes that delinquency rate normalization is exceeding seasonality, which is expected to continue rising over the coming months before accelerating later in the year. On the other hand, KBW remains bullish on card issuers broadly, stating that they warrant a premium valuation relative to the regional banking space.
The credit data also showed delinquency rates ranging from 0.88% at JPMorgan (JPM) to 6% at BFH, with an average of 2.58%, while charge-off rates ranged from 1.33% at JPM to 7.8% at BFH, with an average of 3.24%. Analysts believe there are potential risks to credit cards, such as defaults soaring in 2023 for COF, but overall the sector is stable, with healthy credit quality below prepandemic levels.
In conclusion, the credit card industry is continuing to normalize gradually, with an overall healthy credit quality, except for Bread Financial (BFH). There are slight fluctuations in the rates of delinquency and charge-offs, but they are still below prepandemic levels. Analysts are suggesting that taking advantage of weakness in COF and AXP is a good investment due to their healthy credit quality. Meanwhile, Wolfe Research maintains its Underweight stance on issuers COF, DFS, SYF, and BFH; while KBW remains bullish on card issuers broadly. Although potential risks exist, the sector overall is stable with healthy credit quality.