For all intents and purposes, earnings season begins Friday, when a number of the big banks and financial firms report their first-quarter results. These big banks typically set the tone for your complete quarter, as banks are sometimes a bellwether for the performance of the economy.
Right across the corner in the subsequent few weeks we’ll see quarterly results from one other bellwether sector. Payment processors or credit-card firms typically give insight into consumer spending and confidence.
While the key payment processors are all typically good investments, there may be one which stands out as one of the best buy right away, which is Visa (NYSE:V). Here’s why.
Visa has lagged its competitors
The three major credit-card firms are generally good buys in my book, for probably the most part. In fact, it is dependent upon their valuations and the economic situation at any given time, but right away, Visa, Mastercard (NYSE:MA) and American Express (NYSE:AXP) all look pretty good.
The fourth major credit-card company, Discover Financial Services (NYSE:DFS), is within the technique of being acquired by Capital One (NYSE:COF), and there are still loads of regulatory hoops to leap through. If or when that deal does undergo, it could change the playing field over time, but we’ll cross that bridge once we get to it.
Nonetheless, amongst the massive three, Visa’s stock has lagged each Mastercard and American Express yr so far and over the past yr.
American Express had a record yr in 2023 by way of revenue and earnings, benefiting from a spike in travel demand and a rise in net interest income on account of higher rates of interest. It ought to be noted that American Express has a closed-loop network, so it’s also a lender and issuer. Visa and Mastercard will not be lenders or issuers; each are only payment processors. Thus, while they don’t generate interest income on loans, in addition they should not have credit risk like American Express.
As such, Mastercard surged compared to Visa after it posted higher revenue and growth rates in Q4 and for fiscal 2023 than Visa did. In probably the most recent quarter, Visa recorded 9% year-over-year revenue growth and an 8% increase in adjusted net income growth for the quarter that ended Dec. 31. Meanwhile, Mastercard posted a 13% increase in revenue and a 17% gain in adjusted net income. Mastercard also had a rather higher outlook for 2024.
Nonetheless, considered one of the massive reasons that Visa is one of the best buy of the three right away is its valuation.
The most effective value amongst credit-card stocks
One more reason that Mastercard has outperformed Visa this yr was that its guidance for 2024 was barely higher. Nonetheless, I don’t think the performance gap is critical enough to warrant the upper multiple that Mastercard currently trades at. Mastercard is trading at 40 times earnings, while Visa is at 31. By way of forward P/E ratios, Mastercard is at 32, while Visa is at 27.
Given the incontrovertible fact that these are each tremendous firms with huge earnings power, I’d favor the one with the lower multiple, Visa.
It ought to be noted that American Express is trading at an excellent lower multiple — just 16 times forward earnings. Nonetheless, I’m wondering concerning the impact of the 8% cap on late fees for bank cards that the Consumer Financial Protection Bureau recently imposed, as this affects banks and issuers like American Express more so than Visa or Mastercard. It should be interesting to listen to more on the potential impact on American Express’ Q1 earnings call.
To reiterate, I like all three of those stocks, and all of them would make a fantastic addition to a portfolio, but right away if I had to choose one, I’d favor Visa.
Disclaimer: All investments involve risk. By no means should this text be taken as investment advice or constitute responsibility for investment gains or losses. The data on this report shouldn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.