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Visa vs. MasterCard: Which Stock Is More Lucrative?

Zacks Equity Research

The payments industry is undergoing rapid transformation thanks to the increased use of card-based transactions like credit and debit cards coupled with strong growth in e-commerce and mobile payments. This burgeoning industry provides a unique growth opportunity for companies like Visa Inc. V and MasterCard Inc. MA given their strong international brands and state-of-the-art payments network.

Shares of both players have performed strongly over the last one year. Visa was up 24.3%, almost the same as MasterCard’s gain of 24.4%. The returns compare favorably with the Zacks categorized Financial Transaction Services industry’s gain of 22.3% over the same time frame.

Although both companies boast strong business lines and solid growth prospects, Visa with its Zacks Rank #2 (Buy) looks comparatively better as an investment than Zacks Rank #3 (Hold) MasterCard. Below we will substantiate our reasoning. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings Beat and Estimate Revision

A look at the most recent earnings performance states that Visa scored better than MasterCard. While Visa beat earnings estimates by a good 10.3%, MasterCard delivered a positive earnings surprise of only 1.2%. MasterCard missed on revenues while Visa outperformed its revenue expectations.   

Both companies, however, have performed well over the past 28 quarters. Visa exceeded expectations in 24 of the last 28 quarters, while met estimates in the remaining four. The average earnings surprise for the last four quarters is 5.8%. On the other hand, MasterCard exceeded expectation in 25 of the last 28 quarters, met estimates in two and missed only in one. The average positive surprise for the past four quarters is 4.81%.

For fiscal 2017 (ending on Sep 30, 2017), the earnings estimates for Visa have moved north while that of MasterCard have moved in the opposite direction. Out of 16 analysts covering Visa’s stock, 13 revised the 2017 earnings estimates up by 1.2% to $3.31 over the past 60 days. The same for MasterCard have gone down by 0.9% to $4.26 over the same time frame as eight out of the 15 analysts covering the stock made downward revisions.

Visa Snaps Up a Major Client of MasterCard

MasterCard’s U.S business has been soft, particularly the higher-profit consumer credit business. This is primarily due to the loss of its 30-year old key client,  United Services Automobile Association (USAA), one of the largest issuers of credit and debit cards in the United States to Visa. The loss of this client is a huge blow to MasterCard and is likely to put pressure on its domestic credit business through 2017.

On the other hand, Visa is riding high with the gain of USAA and Costco (another major client) from American Express Inc. AXP. We expect payments volume at Visa to be aided by the addition of USAA and Costco.

Visa to Gain in Europe; MasterCard Struggles with Regulation

MasterCard is facing regulatory as well as economic challenges in Europe. On the contrary, Visa’s acquisition of Visa Europe could bolster its cross-border business, positioning it for higher payments volume. The acquisition of Visa Europe has helped the company address its own weakness of lacking meaningful earnings contribution from Europe for long. It will also help the company to avoid the negative impact of currency fluctuation.

Other Metrics

Visa’s expected EPS growth for (3–5 years) is 16.63%. This is better than MasterCard’s growth rate of 15.5%.

Moreover, Visa’s PEG ratio is 1.63, which is better than MasterCard’s 1.67

Also, beta for Visa is 0.94, which shows less volatility than MasterCard’s stock beta of 1.18.

Net profit margin for Visa is 38.3% compared with MasterCard’s net profit margin of 37.67%. However, both numbers are better than the industry’s net profit margin of 7.25%.

Finally, Visa has a lower leverage as evident by its debt to equity ratio of 0.54 compared with MasterCard’s debt to equity ratio of 0.91.

In Conclusion

While both stocks are part of a booming industry, it’s clear that Visa has better growth prospects. This make it a more obvious choice for investors when it comes to picking between Visa and MasterCard stocks.

Another Stock

Another stock with the same Zacks Rank as Visa is Fiserv, Inc. FISV. The stock beat estimate in two of the last four reported quarters with an average surprise of 1.2%.

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American Express Company (AXP): Free Stock Analysis Report
Mastercard Incorporated (MA): Free Stock Analysis Report
Visa Inc. (V): Free Stock Analysis Report
Fiserv, Inc. (FISV): Free Stock Analysis Report
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