Payment technology company Visa Inc. (V) facilitates digital payments between consumers, merchants, financial institutions, businesses, strategic partners and government entities. It operates VisaNet, a transaction processing network. V is headquartered in Foster City, California. By comparison, Mastercard Incorporated (MY) provides transaction processing and other payment-related products and services. The Purchase, New York-based company facilitates the processing of payment transactions, including authorization, clearing and settlement.
The use of credit cards and other online payment methods has grown dramatically over the past year as people have relied more on digital payment methods that are compatible with distant lifestyles. Despite the increase in prices, retailers recorded strong sales as spending on services and discretionary items increased significantly. Retail sales increased by a seasonally adjusted amount, according to the US Department of Commerce 1.7% in October. This trend is also expected to drive the growth of credit card companies. In addition, technological innovation and the rapid adoption of digital prepaid card services are expected to boost the credit card market in the coming months. According to Research and Markets, the global credit card market is expected to grow at a 3% CAGR to reach $ 103.06 billion in 2021.
MA gained 0.9% in price over the past month over negative returns from V. In addition, MA’s 6.5% gains over the past nine months are greater than negative returns from V. MA is clearly the winner with 6.7% gains over V’s negative performance returns last year.
But which of these two titles is the best buy now? Let’s find out.
On November 9, 2021, V announced the launch of Visa Eco Benefits, a new set of sustainability-focused benefits for account issuers. With this offering, Visa is expected to play a leading role in promoting sustainable commerce and climate action in the payments industry, supporting its clients’ goals of meeting growing cardholder demand to achieve higher sustainable consumption and lifestyle.
On September 28, 2021, MA unveiled Mastercard Payments, a unique and innovative Buy It Now, Pay Later (BNPL) program that offers more choice at checkout, both in-store and online. This program could help the company meet growing consumer demand for flexible and digitally-driven payment options.
Recent financial results
V’s net sales increased 29% year-on-year to $ 6.60 billion for its fiscal fourth quarter, ended September 30, 2021. The company’s non-GAAP net income increased by 42 % year-on-year to $ 3.50 billion. In addition, its non-GAAP EPS was $ 1.62, up 44% year-on-year.
MA’s net revenue increased 30% year-on-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. In addition, its adjusted EPS stood at $ 2.37, up 48% year-on-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 grow 17% in the current year and 14% next year. Its EPS is expected to grow 19.7% in the current quarter and 20.3% in the next quarter. In addition, its EPS is expected to grow at a rate of 17.7% per year over the next five years.
In comparison, 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 grow 23.1% in the current year and 19.5% next year. Its EPS is expected to grow 34.8% in the current quarter and 31% in the next quarter. Additionally, MA’s EPS is expected to grow at a rate of 26.2% per year over the next five years.
The turnover of the last 12 months of V is 1.36 times that generated by MA. V is also more profitable, with EBITDA and net income margins of 68.91% and 51.07%, respectively, compared to 57.51% and 45.50% for MA.
However, the respective ROE, ROA and ROTC of MA 127.62%, 17.80% and 30.49% are higher than 33.36%, 12.06% and 16.55% of V.
In terms of non-GAAP futures PER, MA is currently trading at 43.53x, which is 49.8% higher than V’s 29.06x. And MA’s before 33.38x EV / EBITDA is 45.8% higher than 22.89x by V.
So V is relatively affordable here.
V has an overall rating of B, which is equivalent to a purchase in our property POWR odds system. In comparison, MA has an overall grade of C, which translates into a neutral. POWR scores are calculated taking into account 118 separate factors, each factor being weighted to an optimal degree.
V has a B grade for quality. This is justified given its 2.92% CAPEX / Sales over 12 months rolling, which is higher than the industry average of 32.7%. In contrast, MA has a quality rating of C, which is consistent with its 12-month rolling CAPEX / Sales of 1.93%, which is 12.3% lower than the industry average of 2. 20%.
Of the 53 actions of Consumer financial services Industry, V is ranked No. 12 while MA is ranked No. 17.
Beyond what I stated above, we also rated stocks for momentum, sentiment, value, and quality. Click here to see all V ratings. Also get all MA ratings here.
Rapid technological innovations and economic recovery are driving growth in the credit services industry. Thus, the credit card space should continue to grow over the next few months, to the benefit of V and MA. However, we think it might be a good idea to bet on V now due to its lower valuation and higher profitability.
Our research shows that the chances of success increase when investing in stocks with an overall strong buy or buy rating. See all other top rated stocks in the consumer financial services industry here.
V shares were trading at $ 201.69 per share on Thursday morning, down $ 3.37 (-1.64%). Year-to-date, V is down -7.22%, compared to a 26.14% increase in the benchmark S&P 500 over the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s a passionate interest in the analysis and interpretation of 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 he takes while advising investors in his articles. Following…