Financial services analyst Lisa Ellis from MoffettNathanson provides valuable insight into the current state of Visa (V) and Mastercard (MA) stocks. Ellis suggests that both stocks present investors with an exceptional entry point due to their strong potential for growth.
Ellis maintains her Outperform ratings on Visa and Mastercard, while significantly increasing her target prices. She raises the Visa target price from $290 to $320, indicating a potential 34% upside for investors. Similarly, the Mastercard target price is raised from $460 to $490, signalling a potential 26% gain.
Despite Visa and Mastercard registering a solid start to the year, with gains of 14% and 12% respectively, Ellis observes that they have not kept up with the S&P 500 or the tech mega caps. This lack of comparability is surprising considering the credit-card companies’ strong earnings growth and positive forecast revisions by analysts. Ellis attributes this discrepancy to investors diverting their attention towards artificial intelligence plays rather than recognizing the robustness of Visa and Mastercard’s businesses.
Both companies have consistently outperformed expectations in terms of revenue and EPS for nine consecutive quarters without encountering any newfound risks that could negatively impact their valuations.
While Visa and Mastercard are well-loved stocks with a proven track record of compounding earnings growth, their valuations typically remain within a reasonable range. Ellis emphasizes that it is rare to witness these stocks drop to such low valuation levels that prompt her to write a note about it—an opportunity that is particularly noteworthy for Visa at this moment.
In conclusion, Ellis’s analysis highlights the attractive prospects of investing in Visa and Mastercard, as well as the potential for substantial gains. These credit card giants have consistently delivered impressive results and show no signs of faltering in the near future. Investors would do well to take advantage of the current favorable entry point into these stocks.
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Visa and Mastercard: Bullish Prospects on the Horizon
Ellis, a renowned analyst, believes that Visa and, to a lesser extent, Mastercard are currently trading at discounts to their historical 10-year relative valuations based on their price-to-forward earnings. In particular, Ellis is highly optimistic about Visa’s potential. She highlights that the stock is currently trading at approximately 1.3 times the average forward P/E ratio for the market, which is lower than its 10-year average of 1.5 times.
Interestingly, both Visa and Mastercard experienced a similar underperformance in 2016, only to rally over 40% in 2017. Based on this historical data, Ellis considers both stocks to be among her top favorites.
Looking ahead to 2023, Ellis foresees the possibility of higher revenue than initially expected. Factors contributing to this upward potential include the reopening of the Chinese economy, inflationary pressures, and stabilization of foreign exchange rates.
During the Covid-19 pandemic, both Visa and Mastercard encountered unprecedented challenges due to widespread travel restrictions imposed by governments. This negatively impacted their lucrative cross-border revenue streams. Furthermore, business closures and economic recessions resulted in weak spending in sectors heavily reliant on card payments, such as travel, entertainment, and luxury goods.
However, Ellis reveals that Visa has been steadily increasing its payment volumes on a three-year compounded basis at a rate of 11%, surpassing the growth rate of 9% observed prior to the pandemic. Similarly, Mastercard has maintained a growth rate of 12%, comparable to its 2019 growth rate of 13%.
Ellis emphasizes that the bull case for both stocks remains strong. She identifies several factors supporting this viewpoint: a long-term trend of consumers favoring cash displacement with digital payments, notable advancements in new payment flows, and a competitive advantage further solidified by the challenges presented by the pandemic.
Despite this positive outlook, both Visa and Mastercard experienced slight declines in stock prices on Friday.
It is becoming increasingly evident that Visa and Mastercard are poised for a promising future. Keep an eye on these industry leaders as they continue to adapt and thrive in an ever-evolving market.
