Visa ($V) or Mastercard ($MA) ?

Sure, there’s nothing like a crisp $ 100 bill, but at the end of the day it has to all go digital.

The last couple of years have prompted lot’s of discussion about cryptocurrency used in payment processing solutions that will dissolve the current credit card market. Thankfully, as the bubble deflates investors are turning once again towards the prospect of investing in sustainable and scalable solutions for payment processing.

VISA ($V) and Mastercard ($MA)

The two famous providers of payment processing have experienced significant YoY growth. Mastercard reported 18% sales revenue growth and 24% YoY EPS growth. Additional price drivers in 2018 have been a recent announcement of a share repurchase program as well as an increased dividend. Mastercard is a good long-term play, however many investors are waiting for a pullback before buying more shares.

Mastercard’s dividend is currently $0.25 per share of $191.20, and Visa’s dividend is $0.21 per share of $130.89. As a dividend play Visa is only 0.02% more of a value. 

Although Mastercard seems to represent the credit card industry leader in growth – Visa is still the world leader in payment processing accounting for 55% of the purchase transaction marketshare. Despite slower 2018 growth Visa has the capacity to target emerging markets within the next couple of years. Rumours of solidified partnership with China’s UnionPay, and expansion in India would propel the stock much further.

The equities both trade at around the same forward P/E multiples of 27 ($V) and 29 ($MA), but vastly different current P/E of 33 ($V) and 47 ($MA).

The high PE and ATH stock price of Mastercard has many investors asking whether the stock is overvalued. However ridiculous it would be to short a payment processor like Mastercard, many are betting that investors should see $180 before they see $200. With that said Visa is well-placed to demonstrate exceptional results in 2018, and would be this analysts favourite given the PE, steady-revenue growth, and market capitalisation.

However, regardless of preference to either stock, it is important to note their relationship.  Owning shares of Visa or Mastercard effectively exposes the investor to market risk from the other.

In other words, there is no best case made for owning either $MA or $V ; and owning both may seem redundant, but owning neither would be a missed opportunity.

 

 

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