Prior to COVID-19, Visa and Mastercard generated 39% and 30% of their respectively gross dollar volume from the US in calendar year 2019. The company’s non-GAAP earnings per share declined by -3% YoY from $1.46 in 1Q FY 2020 to $1.42 in 1Q FY 2021. This was a significant improvement as compared to the -22% and -28% YoY decline in non-GAAP earnings per share for Visa in 3Q FY 2020 and 4Q FY 2020, respectively. Also, Visa’s 1Q FY 2021 non-GAAP earnings per share was 11% above sell-side analysts’ forecasts of $1.28. In the company’s recent earnings release, Visa noted that its non-GAAP numbers “exclude equity investment gains and losses, amortization of acquired intangible assets and non-recurring acquisition-related costs.” Therefore, in my opinion based on this valuation model, Visa is a buy.

The last category I look at is the history of annual dividend increases. V has provided investors with 12 consecutive years of dividend growth while MA has increased its dividend for 10 consecutive years. So far in my opinion, V and MA have been very close and I think their https://bigbostrade.com/ numbers are both great but I am giving the point to V in this category. V is generating $4.46 billion more in net income and is generating similar growth rates from a larger starting point. Call me old fashioned but I liked to start with the company’s income statement.

V had a ratio of 95.11% ($20.04B / $21.07B) as almost all their long-term debt is covered by on hand liquidity. MA finished 2020 with $10.60 billion in total cash & short-term investments with $12.02 billion in long-term debt. MA’s ratio was 88.13% ($10.60B / $12.02B) as almost all their long-term debt is covered by their on-hand liquidity. The world is slowly moving to a cashless society, most countries around the globe are transforming in this regard.

Which of the payment processing giants is the best investment opportunity?

Mastercard also generates more of its revenue from markets outside the U.S. Mastercard (MA -0.10%) and Visa (V 0.03%) are two giants of the financial services world and account for a huge portion of forex atr the card-based payments market. Read on for differing bull cases from two Motley Fool contributors. Q.ai. Q.ai offers advanced investment strategies that combine human ingenuity with AI technology.

• Visa and Mastercard generally earn a small percentage every time a consumer swipes their credit, debit, or prepaid card.
• Transaction volumes might decline, and the total amount of spending through the network might also decline, but people still need to buy and sell essential items in an economic downturn.
• It clearly shows the superior growth profile of Mastercard’s business model.

For me, the separation of CEO and chairman is enough to tilt the scales in favor of Mastercard, but each investor has to answer what’s most important to them. Ultimately, there’s no wrong answer when choosing between two excellent businesses. Both companies have network strength, Mastercard with its international exposure and Visa with a heavier commercial exposure. With a slight edge in employee ratings and the decidedly better governance practice of separating the chairman and CEO roles, Mastercard gets the edge in this category.

The good news was that Visa’s processed transactions volume was up 8% while Mastercard’s transaction volume, in dollars, was up 9%. As a result, one potential strategy for investors expecting a recession could be to wait for a more attractive entry price. Alternatively, some may want to buy shares now and add to those positions if a recession occurs.

Which payment processing giant should investors put their money behind?

They’re both just credit card middlemen, collecting a small percentage of the transaction every time a customer makes a card-based purchase. 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.

We will discuss whether these two payments behemoths deserve a space in growth investors’ portfolios. We will also share whether investors should choose one or add both now. The Motley Fool has positions in and recommends Mastercard and Visa. If you’re only looking to add one of these stocks to your portfolio, the best way to pick between the two is to weigh their business strengths, growth outlooks, and valuation profiles. Visa and Mastercard have a lot in common, but you may decide that one stock or the other is a better fit for your personal risk tolerance and portfolio goals.

In 2020, Mastercard generated total net revenue of $15.3 billion, with a payment volume of $6.3 trillion. Mastercard’s core products include consumer credit, consumer debit, prepaid cards, and a commercial product business. Mastercard has one reportable business segment, known as Payment Solutions, which is broken out by geographies across the United States and other countries. Sticking with assets I like to look at the return on asset ratio to see how efficient a company can utilize their asset base. As an investor, I am looking to generate a return on my capital so this is an important aspect to review.

• The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
• However, even after the depths of the Great Financial Crisis, Visa and Mastercard shares were both quick to recover.
• Analysts expect the company’s revenue to increase 18.9% for the quarter ending March 31, 2022, and 14.2% next year.

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%. Shares of both Visa and Mastercard are virtually flat YTD Vs. the S&P 500’s -16%.

What is the Price Target for V Stock?

Visa (trading symbol V) commands a $497.5 billion market capitalization, while Mastercard (trading symbol MA) follows closely behind at $359.8 billion (market caps as of May 18, 2021). As neither company extends credit or issues cards through a banking division, both have a broad portfolio of co-branded offerings. Hopes of a continued rebound are supported by both stocks’ historical performance. Over the last decade, Mastercard’s total return is +702% to beat Visa’s +527%.

The issuing financial institution sets the payment card’s terms and conditions, including fees, rewards, and other features. (Retailers usually work with a third-party financial institution.) For credit cards, the issuing bank is responsible for underwriting, interest rate structuring, and the full development of rewards programs. Compared to the S&P 500’s price-to-earnings ratio of 20.4, these two are pretty expensive. However, because of each company’s strong execution and incredible business model, they have long traded at a premium to the market and still done well as an investment.

Stock of the Week Under $10: Heritage Global (HGBL)

Visa Inc. and Mastercard Inc. are mature, stable companies in a hugely profitable business — payment processing. Visa has a Strong Buy consensus rating based on 19 Buys, one Hold, and one Sell rating assigned over the last three months. At $259.85, the average Visa stock price target implies upside potential of 17.6%. Visa is also much larger in terms of revenue, at $30.2 billion for the last 12 months. Visa’s debt-to-equity ratio of 55.5% is also far better than Mastercard’s 232%, which could be critical in the event of a recession.

On the contrary, MA shares trade at a 34X forward earnings multiple, just above its decade median of 29.5X. Visa stock currently trades at 26.1X forward earnings, and nicely below the decade-high of 44.1X. Pivoting to valuation will give a better idea if the recent rally in these equities can be sustained and possibly provide investors with the stellar returns seen over the last decade. As for which stock is cheaper, they both fetch a premium compared to the market. During each company’s last earnings period, both posted strong results. With the strength these stocks have displayed in 2022, you’d likely expect the businesses did well, and you’d be correct.

This high ROIC suggests that Visa is highly effective in allocating the remaining cash that is reinvested into the business, generating strong returns as a result. It’s worth noting that Visa’s Earnings Per Share has grown at over 15% annually for the last nine years. In my opinion, this impressive financial performance is largely attributable to the sustainable competitive advantage that Visa’s network and technology provide. In other words, the United States isn’t exactly a high-growth market for credit card middlemen. The two companies — as well as their respective stocks — also sport comparable results for the past several years.

Visa’s U.S. concentration benefited the company in Q3

After analyzing a company’s income statement I move to the balance sheet. First, I start with the current assets and look for how much total cash and short term investments a company has on the books. This is always my starting point because I like seeing how big a company’s war-chest is.

We are confident that Mastercard and Visa will continue to play their leading roles moving forward. Cash transactions are still predominant in the developing economies. Therefore, there are plenty of opportunities for MA and V to capitalize. In the same year the U.S. accounted for $39.6 billion combined purchase transactions further proving America is a society that loves to spend.

This allows me to understand a company’s results not just for the prior year or trailing twelve months (TTM) but over an extended period of time. The income statement provides insights into the company’s revenue, expenses and profits. Through solid analysis, I can visualize the previous trajectory of each segment and build a forecasting model for the future.

This is likely attributable to the stronger recovery in transaction volume in the US as compared to other parts of the world. With the US ahead of many other countries in terms of the progress of the vaccine rollout program, Visa with its larger contribution from the US market could continue to out-perform Mastercard in the near-term. Visa excels in shareholder-friendliness, primarily through its dedication to returning a substantial amount of its free cash flow to investors. As of Q3, 2023, Visa had generated $13,074 million in free cash flow. Of this amount, $8,277 million was allocated to share repurchases and $2,823 million was spent on dividends. This means that approximately 63% of its free cash flow was used for share buybacks and about 22% was distributed as dividends, totalling around 85% of the free cash flow being returned to shareholders.

This allows me to see how much of a company’s assets convert to equity while illustrating how efficiently the organization operates. V has total equity to total asset ratio of 44.75% ($36.21 B / $80.92 B). At the end of 2020, MA’s total equity to total asset ratio was 19.41% ($6.52B / $$33.59B).