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Mastercard and Visa Following Parallel Paths to Success

Few industries drip money as copiously as the credit card industry. Card issuers make money on both ends of every transaction – from fees and interest charges to the customer, as well as to the merchant. It’s a business model that has propelled both Mastercard (MA) and Visa (V) to the top of the financial world, as leaders in the electronic transaction and payment processing segment.

The two companies have other factors in common. Both report earnings this month, Visa on July 23 and Mastercard one week later, and both are expected to show notable gains. Last month, both companies were announced as founding members of Facebook’s (FB) Libra Association, indicating their joint interest in staying on top of developments in online transaction, and an indication of their corporate view toward P2P services and cryptocurrency.

There is another commonality: both stocks have attracted attention from the same top analysts in the TipRanks database. Five-star analysts Bryan Keane of Deutsche Bank and Moshe Katri of Wedbush published notes on both companies, and raised their price targets based on their common upbeat outlook for the stocks. Let’s see what they had to say.

Mastercard, Inc. (MA)

Start with Mastercard. While the logo is ubiquitous on charge cards worldwide, Mastercard does not actually issue them itself. In this, it shares another similarity with Visa. Both companies permit their branding on cards issued by banks, credit unions, or other financial institutions, and then process the payments and transactions between card holders at point of purchase and the merchant.

Katri was first to weigh in on Mastercard, writing on June 13, “expect results to benefit from strong secular growth tailwinds, as well as from accelerated, ongoing monetization efforts. MasterCard generates roughly 15% of revenues from non-transaction processing, services, and expect the mix to expand further as some of the new growth areas gain scale/traction.” In short, Katri expects that emerging non-card, online payment systems will form an increasing portion Mastercard’s business as the company adapts to the changing conditions of the app-based online world. In line with his expectation of the company’s success, Katri raised his price target on MA by 10% to $287, indicative of a modest 2.73% upside to the stock.

Bryan Keane published his note on the charge card companies earlier this month, taking especial note of both companies’ participation in Libra. Of Mastercard, he believes that, while new transaction models will continue build, the company has “a long runway to benefit from the secular growth of card-based transactions.” Like Katri, he raised his target on MA, setting it at $330. His target indicates greater confidence in Mastercard, with an 18% upside.

Mastercard will report Q2 earnings on July 30. The company is expected to show an EPS of $1.82, a strong gain of 9.6% from the year-ago quarter’s $1.66. MA has beaten the earnings forecast for the last 10 quarters.

Overall, Mastercard has a strong buy rating from the analyst consensus, based on 20 buys and 1 hold given in the past three months. Shares sell for $279, so the current average price target of $281 suggests a surprisingly modest 0.7% upside. As analysts Katri and Keane indicate, however, that price target may be too low.

Visa, Inc. (V)

Visa shares the branded card payment processor market space with Mastercard. It’s the larger of the two companies, with a market of $394 billion, compared to MA’s $285. Visa has the higher upside at the moment, too, but like Mastercard, it’s average price target may be too low.

Turning to the details, in a July 2 note Moshe Katri focused on Visa’s participation in Libra. He notes that each member will be required to fund the new crypt to at least $10 million, but that that sum is small change for a company Visa’s size. He took closer note of the regulatory aspects and growth impact that Libra membership may offer Visa: “Regulatory bodies will be looking at Libra across multiple angles, including data privacy and security and the impact of a new currency on the global financial system. Visa is expected to benefit from a new secular growth tailwind as it gains market share in electronic payments through its involvement with Libra.” Katri added that market watchers may be overestimating how much disruption Libra will cause in the online transaction segment.

With intrusive regulation and a possible flop for Libra, Katri did not change his price target on V, keeping it $187 for a 3.56% upside.

Keane, on the other hand, sees greater potential benefits for Visa, both from the secular trends and participation in emerging trends like crypto. He says, “The expanding market share opportunity into new account-to-account payment flows and non-interchange-based revenue models are being underappreciated.” With this in mind, he sets a $225 price target on the stock, a 27% increase over his previous target and suggesting a 24% upside to the stock.

When Visa is expected to report $1.33 EPS on July 23, in its Q1 2020 earnings call. The expectation is 10.8% higher than the year-ago quarter, and like MA, continues a trend of increasing earnings.

Visa is another strong buy, having received 13 buy ratings and 1 hold in the last three months. The stocks $185 price target suggests an upside of 2.6% to the current share price of $180. While Katri believes this is about right for the stock, Keane’s target would suggest greater room on the upside.

Visit TipRanks’ Earnings Calendar to see which companies will be reporting in coming days.