Will This Card Company Charge Ahead of its Competition in 2014?

After a solid earnings report, Visa may have set the stage for outperformance over smaller peer MasterCard once again.

Feb 18, 2014 at 7:00AM

Source: Flickr / Images of Money

In recent months, shares of payments industry leader Visa (NYSE:V) have lagged behind those of rival MasterCard (NYSE:MA). However, both companies recently reported earnings and Visa impressed while MasterCard disappointed. As a result, shares of the former rallied and shares of the latter dropped.

At current levels, Visa remains a viable alternative to its industry rival. Accordingly, investors seeking value in growth stocks should consider Visa for the long-term.

Solid earnings beat
Visa reported impressive earnings last week, especially in comparison to the reports from rivals American Express (NYSE:AXP) and MasterCard.

Visa managed to beat the average analyst estimates on both the top and bottom lines. The strong results were driven primarily by strong payments volume growth for Visa in the quarter. On a constant-dollar basis, volume was up 11% to $1.2 trillion. 

These numbers represent solid year-over-year growth for Visa as well. Revenue grew 11% over the prior year's quarter and EPS grew an even more impressive 14%.

In the company's release, Chief Executive Officer Charlie Scarf summed it up, "Visa delivered a strong fiscal first quarter, posting solid revenue, net income and earnings growth. We continue to focus on embracing new technology and new partners which will make our network the one of choice." 

As strong as Visa's results look when measured against analyst estimates, the company's performance in the most recent quarter looks even better when compared to results from rival MasterCard.

MasterCard fared even worse in its most recent quarter, as the company failed to meet both the consensus revenue and EPS estimates. MasterCard reported revenue of $2.13 billion and EPS of $0.57, which was below analysts' expectations of $2.14 billion in revenue and $0.60 in earnings per share. 

Growth is comparable but not quite industry-leading yet
Visa's projected growth is significantly more robust than that of American Express and relatively comparable to that of MasterCard for the most part. The following table breaks down all three companies' projected growth in 2014: 

 Projected 2014 Revenue GrowthProjected 2014 EPS Growth
Visa 9.8% 17%
American Express 5.6% 11%
MasterCard 12% 17.6%

MasterCard and Visa are the clear leaders in the space. Although Visa is projected to lag behind its smaller rival in terms of revenue growth, the two companies' EPS growth is expected to be very similar going forward.

For a while, Visa was significantly cheaper than MasterCard, however the latter's recent drop in share price has basically made the two equal in terms of forward-looking valuation. Visa's forward P/E is 20.3 while MasterCard's is 20.2. American Express remains the cheapest by far with a forward P/E of 14.10, which is to be expected considering the company's inferior growth and slightly difference business model which includes generating interest on loans.

Also, Visa pays a solid dividend of $1.60, equal to a yield of 0.70%. MasterCard pays a dividend of $0.44, equal to a yield of 0.60%. Meanwhile, American Express leads competitors once again with a dividend of $0.92, equal to a yield of 1.10%.

A payment juggernaut for the future
Although Visa is currently the largest company in the space by far, you wouldn't know it by looking at the company's growth. Visa is still growing at a level that is relatively comparable to its smaller, aggressive peer MasterCard and above the level of the more mature American Express.

Three companies can continue to do well in the future as the world continues to shift away from cash and toward various forms of electronic payment. However, Visa and MasterCard are the two best growers in the segment by far. The impressive results from Visa's latest earnings report indicate that the company may be set to lead the industry once again.

2014's best stock?
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Philip Saglimbeni owns shares of MasterCard. The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information