Visa Inc. V and Mastercard Inc. MA, leaders in the payment processing industry, recently reported results for the January- March quarter. While Mastercard reported first-quarter results, Visa came up with second-quarter fiscal 2019 numbers.
Both Visa and Mastercard, with a market capitalization of $314 billion and $247 billion, respectively, are leaders in the payment processing industry with their worldwide payment network, partnerships with several retailers, banks and merchants, and a developed technological platform. Other leading companies in the same space are Discover Financial Services DFS, American Express Inc. AXP.
Both Visa and Mastercard have identical business offerings and operate in almost same markets providing customers with almost similar benefits. Macroeconomic factors like GDP growth, unemployment, and the global economic environment affect the stocks in similar fashion.
Mastercard and Visa have made massive investments in technology and are aggressively seeking to make deep inroads into small and medium business segments. Given the ever-growing payments space, both the companies are slated for long-term growth.
In a year’s time, Visa with a Zacks Rank #3 (Hold) and Mastercard with a Zacks Rank #2 (Buy) have gained 22.4% and 28%, respectively, outperforming the industry’s growth of 13.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We, here, try to analyze which one of the two stocks hold an edge over the other based on the recent reported results.
Earnings Surprise and Estimate: In the recently reported results, both Visa and Mastercard surpassed their respective earnings estimate by 5.65% and 7.23%, respectively. They also have an impressive beat track, having surpassed estimates -- 5.75% for Mastercard and 5.40% for Visa – in each of the last four quarters.
Visa has seen an upward revision by 0.9% for fiscal 2019 to $5.38 per share over the past 60 days, while the same for Mastercard is up 0.6% to $7.6 per share. Visa seems better off here.
Return on Equity: ROE is one of the most widely used profitability measures, reflecting the efficiency by which a company uses its shareholder funds to generate returns. While Mastercard has an ROE of 30%, the same for Visa is 41%, reflecting its better profitability.
Valuation: The 12-month forward price-to-earnings ratio shows that Mastercard is trading at a P/E of 30 compared with the industry’s PE of 24, but is near its higher-than-median level of 25.4, which shows its expensive valuation.
Visa, on the other hand, has a PE ratio of 27, which is higher than the industry’s PE of 24 and its own median of 25. However, a comparison shows that Visa is relatively cheaper than Mastercard.
Leverage Levels: Another metric that can affect a company’s profitability is its leverage ratio. Though some amount of debt is good for companies as it helps to generate higher returns, since debt is relatively a cheaper source of capital than equity, high debt can be hazardous.
Visa has a debt-to-equity ratio of 43% and the same for Mastercard is 121%, compared with the industry’s 63%. This implies that Visa has a better debt profile than Mastercard and thus low financial risk.
Growth Estimates: For fiscal 2019, Visa’s earnings are expected to grow at 16.7% while the same for Mastercard are expected to grow at 17.75%, compared with the industry average growth of 12.4%.
Though both companies will surpass the industry growth rate, Mastercard holds an advantage here, over Visa.
Our comparative analysis shows that on most fronts, Visa comes out as a better bet than Mastercard. Though both companies score closely, for now, Visa seems to be a better pick.
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Discover Financial Services (DFS) : Free Stock Analysis Report
American Express Company (AXP) : Free Stock Analysis Report
Mastercard Incorporated (MA) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
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