On Thursday, one Wall Street analyst said Mastercard’s recent outperformance underscores the fact that Visa is the better investment at this point.
The Analyst: Bank of America analyst Jason Kupferberg reiterated his Buy rating for Visa and raised his price target from $227 to $234. He also reiterated his Hold rating for Mastercard and raised his price target from $324 to $358.
The Thesis: Kupferber said much of Mastercard’s outperformance in recent weeks was likely driven by what was perceived to be better second-quarter earnings numbers. However, he said Mastercard management was clear on its earnings call that client incentives drove revenue upside largely due simply to timing. Management also mentioned timing as a primary factor in operating margin upside as well.
After adjusting for the timing impacts, Kupferberg said Mastercard’s quarter was essentially in-line with Visa’s.
Looking ahead to the second half of the year, Kupferberg said Visa is better-positioned to potentially report some meaningful earnings beats, and the stock also has more valuation upside given it currently trades at a 12% earnings multiple discount to Mastercard.
Mastercard bulls may argue that the company’s 13.5% US debit volume growth compares favorably to Visa’s, at 8%, but Kupferberg said those numbers are a bit misleading given Mastercard’s debit volume is only half the size of Visa’s.
“Given current choppiness in consumer spending, we believe the higher mix of debit (which tends to be linked to more non-discretionary purchases) is a plus,” Kupferberg said.
Benzinga’s Take: It’s difficult to get a clear picture of the underlying trends for both Visa and Mastercard these days. Kupferberg said stimulus funds, including unemployment benefits in many states, created significant noise in both companies’ second-quarter numbers.