Visa vs. Mastercard: Which Credit Card Stock is a Better Buy?

By Nimesh Jaiswal

Payment’s 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. V is headquartered in Foster City, Calif. In comparison, Mastercard Incorporated (MA) provides transaction processing and other payment-related products and services. The Purchase, N.Y.-based company facilitates the processing of payment transactions, including authorization, clearing, and settlement.

The use of credit cards and other online payment methods has increased significantly over the past year, as people have relied more on digital modes of payments consistent with remote lifestyles. Despite increasing prices, retailers have reported solid sales because spending on services and discretionary items has increased significantly. According to the U.S. Commerce Department, retail sales rose a seasonally adjusted 1.7% in October. This trend should drive growth for credit card companies too. Furthermore, technological innovation and the rapid adoption of digital prepaid card services should enhance 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 hit $103.06 billion in 2021.

MA has gained 0.9% in price over the past month versus V’s negative returns. Also, MA’s 6.5% gains over the past nine months are higher than V’s negative returns. MA is the clear winner with 6.7% gains versus V’s negative returns in terms of their past year’s performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On November 9, 2021, V announced the launch of Visa Eco Benefits, a new package of sustainability-focused benefits for account issuers. With this offering, Visa should play a leading role in driving sustainable commerce and climate action in the payments industry, supporting its clients’ objectives of meeting increasing demand from cardholders to achieve sustainable consumption and living.

On September 28, 2021, MA unveiled Mastercard Installments, a unique and innovative Buy Now, Pay Later (BNPL) program that delivers greater choice at checkout, both in-store and online. This program could help the company meet a growing consumer demand for flexible, digital-first payment options.

Recent Financial Results

V’s net revenue increased 29% year-over-year to $6.60 billion for its 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 17% in the current year and 14% next year. Its EPS is expected to increase 19.7% in the current quarter and 20.3% next quarter. Furthermore, its EPS is expected to grow at a 17.7% rate per annum 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 increase 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% next quarter. Also, MA’s EPS is expected to grow at a 26.2% rate per annum over the next five years.

Profitability

V’s trailing-12-month revenue is 1.36 times what MA generates. V is also more profitable, with EBITDA and net income margins of 68.91% and 51.07%, respectively, compared to MA’s 57.51% and 45.50%.

However, MA’s 127.62%, 17.80%, and 30.49% respective ROE, ROA, and ROTC are higher than V’s 33.36%, 12.06%, and 16.55%.

Valuation

In terms of forward non-GAAP P/E, MA is currently trading at 43.53x, which is 49.8% higher than V’s 29.06x. And MA’s 33.38x forward EV/EBITDA is 45.8% higher than V’s 22.89x.

So, V is relatively affordable here.

POWR Ratings

V has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In comparison, MA has an overall C rating, which translates to a Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

V has a grade of B for Quality. This is justified given its 2.92% trailing-12-month CAPEX/Sales, which is higher than the 32.7% industry average. In contrast, MA has a Quality grade of C, which is consistent with its 1.93% trailing-12-month CAPEX/Sales, which is 12.3% lower than the 2.20% industry average.

Of the 53 stocks in the Consumer Financial Services industry, V is ranked #12 while MA is ranked #17.

Beyond what I have stated above, we have also rated the stocks for Momentum, Sentiment, Value, and Quality. Click here to view all the V ratings. Also, get all the MA ratings here.

The Winner

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 coming months, benefiting V and MA. However, we think it could be wise to bet on V now because of its lower valuation and higher profitability.

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.


V shares were trading at $201.69 per share on Thursday morning, down $3.37 (-1.64%). Year-to-date, V has declined -7.22%, versus a 26.14% 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.

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