Visa Stock Is A Better Long Play Than MasterCard

  • Visa shares are climbing a wall of worry over its acquisition of Visa Europe.
  • Visa has been far more aggressive than MasterCard in expanding its payment footprint.
  • Don't sweat Apple. Visa earnings will accelerate starting in 2017.

If you go back five years, or even 10 years, there’s not much to choose between Mastercard (NYSE:MA) and Visa (NYSE:V). Both have been fabulous investments, rising over 300% each since late 2010.

MA stock chart

Source: Visa stock Price v/s Mastercard stock price comaprison chart by

But more recently the two paths have diverged. Throughout November, Visa shares have continued to rise while those of MasterCard have fallen back a bit. MasterCard is still up 13.66% since January, but Visa’s gains are now 5% better, at nearly 21.91%.

Why is that? In general, Visa has been more aggressive lately, creating a new business payments unit with Bottomline Technologies, partnering with Swatch on contactless payments, and launching a partnership with news site Mashable under which the site offers e-commerce payable only through Visa cards.

But the main reason has to be its agreement to buy Visa Europe, its European arm, for $23.4 billion.

The two companies had split in 2007, as the banking industry’s problems were just becoming known. The initial reaction to the deal was actually negative, due to the price, but as traders have adjusted they are seeing an extraordinary value here.

The reason is that Visa Europe has been underperforming, relative to Visa in the U.S. Thus it was thought Visa US was over-paying. But that under-performance is also an opportunity, and the two major US payment networks now dominate the continent, with 86% of the market.

Visa now has the opportunity to bring all its technological weight to bear on the European payments scene. The deal will cut into earnings next year, but should add to earnings by 2017, when earnings growth should come in at 10-20% again. Visa Europe has 500 million cards, the continent made the expensive switch to chip-and-pin (or EMV) technology years ago, and the $16 billion in debt the parent company is taking on as a result of the deal can be readily borne on a balance sheet with $40 billion in assets.

Stock analysis, and thus pricing, is forward-looking, and there are bound to be analysts who fret that Apple (NASDAQ:AAPL) represents a threat, with a peer-to-peer payment plan it might run through banks, bypassing the networks. But Apple Pay works with networks now, and the move to mobile pay, until now, has only accelerated earnings for the whole payments space. Any move by Apple to get around Visa, in other words, is highly speculative.

The Visa Europe deal, and its financial benefits, is not speculative. It’s certain. So are the other aggressive moves by Visa to expand its dominant payment footprint. Visa earnings will slow short-term but in the long-term they’re accelerating.

That’s why Visa stock is outpacing its rival, and could continue to do so in the next year and beyond.

Dana Blankenhorn Dana Blankenhorn   on Amigobulls :
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  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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