Payments technology company Visa Inc. (V) facilitates digital payments among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a transaction processing network. On the other hand, Mastercard Incorporated (MA) provides transaction processing and other payment-related products and services. It facilitates payment transactions, including authorization, clearing, and settlement.
According to a MA report, U.S. retail sales rose 8.5% during this year’s holiday shopping season, powered by soaring e-commerce sales. As consumers have been increasingly spending on discretionary items and services restrained by the COVID-19 pandemic, credit card transactions are rising. In addition, according to The Conference Board, the consumer confidence index came in at 115.8 points in December, up from an upwardly revised 111.9 in November. Strong consumer confidence is expected to translate into more purchases, leading to greater use of credit cards. Moreover, consumer spending is expected to remain strong in 2022, despite a resurgence in COVID-19 infections, high prices, and reduced fiscal stimulus. Therefore, both V and MA should benefit.
MA has gained 16.5% over the past month, while V has returned 13.3%. Which of these two stocks is a better buy now? Let’s find out.
On December 20, 2021, V announced it had completed the acquisition of Currencycloud, a global platform that enables banks and fintech to provide innovative foreign exchange solutions for cross-border payments. The acquisition will empower Visa and Currencycloud clients and partners to provide greater transparency, flexibility, and control for consumers and businesses.
On December 21, 2021, MA announced an agreement to acquire McDonald’s (MCD) state-of-the-art personalization platform and decision engine company, Dynamic Yield. Raj Seshadri, President of Data & Services, MA, said, “With Dynamic Yield’s expertise and our scale and relationships, we’ll be able to bring the connections between the end consumer and our customers to new heights.”
Recent Financial Results
V’s net revenue increased 29% year-over-year to $6.60 billion for the fiscal fourth quarter ended September 30, 2021. The company’s non-GAAP net income grew 42% year-over-year to $3.50 billion. Also, its non-GAAP EPS came in at $1.62, up 44% year-over-year.
MA’s net revenue increased 30% year-over-year to $5 billion for the third quarter ended September 30, 2021. The company’s adjusted net income increased 46% year-over-year to $2.30 billion. Also, its adjusted EPS came in at $2.37, up 48% year-over-year.
Past and Expected Financial Performance
V’s revenue and EPS have grown at CAGRs of 5.4% and 8.4%, respectively, over the past three years. Analysts expect the company’s revenue to increase 18.9% for the quarter ending March 31, 2022, and 14.2% next year. Its EPS is expected to increase 20.3% for the quarter ending March 31, 2022, and 19.6% next year. Moreover, its EPS is expected to grow at a rate of 17.7% per annum over the next five years.
On the other hand, MA’s revenue and EPS have grown at CAGRs of 7.2% and 18.2%, respectively, over the past three years. The company’s revenue is expected to increase 22.2% for the quarter ending March 31, 2022, and 19.7% next year. Its EPS is expected to grow 31% for the quarter ending March 31, 2022, and 27.3% next year. Also, MA’s EPS is expected to grow at a rate of 26.2% per annum over the next five years.
V’s trailing-12-month revenue is 1.36 times what MA generates. V is also more profitable with an EBITDA margin and net income margin of 69.09% and 51.07% compared to MA’s 57.51% and 45.50%, respectively.
However, MA’s ROE, ROA, and ROTC of 127.62%, 17.80%, and 30.49% are higher than V’s 33.36%, 12.10%, and 16.51%, respectively.
In terms of forward non-GAAP P/E, MA is currently trading at 45.29x, 44.9% higher than V’s 31.26x. Moreover, MA’s forward EV/EBITDA of 34.03x is 42.7% higher than V’s 23.85x.
So, V is relatively affordable here.
V has an overall rating of B, which equates to a Buy in our proprietary POWR Rating system. On the other hand, MA has an overall rating of C, which translates to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
V has a grade of B for Quality. This is justified given its trailing-12-month CAPEX/Sales of 2.92%, 28.6% higher than the industry average of 2.27%. On the other hand, MA has a Quality grade of C, consistent with its 1.93% trailing-12-month CAPEX/Sales, 15% lower than the industry average of 2.27%.
Of the 52 stocks in the Consumer Financial Services industry, V is ranked #9 while MA is ranked #23.
The rapid technological innovations and the recovering economy are driving the growth of the credit services sector. So, the credit card space is expected to continue growing in the upcoming months, benefiting V and MA. However, I believe V is currently the better investment because of its lower valuation and higher profit margin.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Consumer Financial Services industry here.
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V shares were trading at $220.15 per share on Thursday afternoon, up $0.15 (+0.07%). Year-to-date, V has gained 1.59%, versus a -1.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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