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Visa (V - Free Report) and Mastercard (MA - Free Report) are two of the steadiest performing stocks in the market. They are what some investors would call ‘Compounder Stocks.’
A compounder stock is a company with high return on invested capital, a robust franchise, recurring revenues, intangible assets, pricing power, and low capital intensity. These are companies that have exhibited exceptional long-term returns, and regularly outperform during economic downturns.
While the last two years have been extremely difficult for even the best stocks, Visa and Mastercard have remained steadfast. Visa reports earnings Tuesday, April 25 after the market closes, and Mastercard reports Thursday, April 27 before the market opens.
Image Source: Zacks Investment Research
Visa
Earnings and sales estimates for Visa are quite strong. Analysts are expecting to see YoY sales growth of 8% to $7.7 billion for Q2. Earnings are projected to grow 10% YoY to $1.97 per share. Analyst estimates have been trending higher over the past 60 days giving Visa a Zacks Rank #2 (Buy).
Image Source: Zacks Investment Research
These are high expectations for the financial processing giant as many premier companies have projected more tepid estimates, making it easier for companies to reach expectations. However, if Visa can meet or exceed expectations, it should be a very bullish catalyst.
The two years of sideways action in the stock price has created a very compelling setup for investors focused on V. Trading as high as 45x earnings back in 2021, Visa is now back to its 10-year median of 28x one-year forward earnings. That is a considerable discount for investors who have remained patient.
Image Source: Zacks Investment Research
Visa’s management is also extremely shareholder friendly. The share count has declined by 22% over the last ten years thanks to consistent share buybacks. Additionally, the dividend payout has been raised from $0.40 in 2014 to $1.58 per share today. The dividend yield is currently 0.8%.
Visa has macroeconomic tailwinds as well. Because the fees vendors pay to Visa are percentage based, a rise in inflation has led to a direct rise in revenue.
Image Source: Zacks Investment Research
Mastercard
Many of the things that make Visa great also apply to Mastercard. Consistently shrinking share count, discounted valuation, and benefits from inflation. In fact, Mastercard has bested Visa in stock performance over the last decade.
Image Source: Zacks Investment Research
However, the current quarter earnings estimates are a bit weaker for Mastercard. Sales estimates are about the same, expecting 9% YoY growth, but earnings are expected to weaken YoY to $2.71 per share, a -1.8% decline. Additionally, MA has a Zacks Rank of #3 (Hold), indicating mixed earnings revisions.
Image Source: Zacks Investment Research
Mastercard is currently trading at a one-year forward earnings multiple of 31x, which is well off its two-year high of 51x, and just above its 10-year median of 30x. MA offers a dividend yield of 0.6%, which has increased by an average of 17% annually over the last five years.
Image Source: Zacks Investment Research
The primary risks for both V and MA would be an economic downturn. If people spend less money, processors like these two don’t collect as many fees. Fortunately, both companies have substantial cash positions to hold them over during tough times. Even better, if markets trade lower, they can deploy that cash for acquisitions or share buybacks.
Bottom Line
Sometimes, instead of correcting in price, stocks will correct over time, which is exactly what V and MA look like. After two years of sideways action, they have had their valuations nearly halved, presenting an opportunity for discerning investors. While few people would consider their current valuations deep value, for the best franchises, rarely do investors get the opportunity to buy very cheaply.
Visa and Mastercard are special companies. While the coming quarterly report will be important, these are stocks that investors should focus on holding for the long term.
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Visa and Mastercard Earnings: Time to Buy?
Visa (V - Free Report) and Mastercard (MA - Free Report) are two of the steadiest performing stocks in the market. They are what some investors would call ‘Compounder Stocks.’
A compounder stock is a company with high return on invested capital, a robust franchise, recurring revenues, intangible assets, pricing power, and low capital intensity. These are companies that have exhibited exceptional long-term returns, and regularly outperform during economic downturns.
While the last two years have been extremely difficult for even the best stocks, Visa and Mastercard have remained steadfast. Visa reports earnings Tuesday, April 25 after the market closes, and Mastercard reports Thursday, April 27 before the market opens.
Image Source: Zacks Investment Research
Visa
Earnings and sales estimates for Visa are quite strong. Analysts are expecting to see YoY sales growth of 8% to $7.7 billion for Q2. Earnings are projected to grow 10% YoY to $1.97 per share. Analyst estimates have been trending higher over the past 60 days giving Visa a Zacks Rank #2 (Buy).
Image Source: Zacks Investment Research
These are high expectations for the financial processing giant as many premier companies have projected more tepid estimates, making it easier for companies to reach expectations. However, if Visa can meet or exceed expectations, it should be a very bullish catalyst.
The two years of sideways action in the stock price has created a very compelling setup for investors focused on V. Trading as high as 45x earnings back in 2021, Visa is now back to its 10-year median of 28x one-year forward earnings. That is a considerable discount for investors who have remained patient.
Image Source: Zacks Investment Research
Visa’s management is also extremely shareholder friendly. The share count has declined by 22% over the last ten years thanks to consistent share buybacks. Additionally, the dividend payout has been raised from $0.40 in 2014 to $1.58 per share today. The dividend yield is currently 0.8%.
Visa has macroeconomic tailwinds as well. Because the fees vendors pay to Visa are percentage based, a rise in inflation has led to a direct rise in revenue.
Image Source: Zacks Investment Research
Mastercard
Many of the things that make Visa great also apply to Mastercard. Consistently shrinking share count, discounted valuation, and benefits from inflation. In fact, Mastercard has bested Visa in stock performance over the last decade.
Image Source: Zacks Investment Research
However, the current quarter earnings estimates are a bit weaker for Mastercard. Sales estimates are about the same, expecting 9% YoY growth, but earnings are expected to weaken YoY to $2.71 per share, a -1.8% decline. Additionally, MA has a Zacks Rank of #3 (Hold), indicating mixed earnings revisions.
Image Source: Zacks Investment Research
Mastercard is currently trading at a one-year forward earnings multiple of 31x, which is well off its two-year high of 51x, and just above its 10-year median of 30x. MA offers a dividend yield of 0.6%, which has increased by an average of 17% annually over the last five years.
Image Source: Zacks Investment Research
The primary risks for both V and MA would be an economic downturn. If people spend less money, processors like these two don’t collect as many fees. Fortunately, both companies have substantial cash positions to hold them over during tough times. Even better, if markets trade lower, they can deploy that cash for acquisitions or share buybacks.
Bottom Line
Sometimes, instead of correcting in price, stocks will correct over time, which is exactly what V and MA look like. After two years of sideways action, they have had their valuations nearly halved, presenting an opportunity for discerning investors. While few people would consider their current valuations deep value, for the best franchises, rarely do investors get the opportunity to buy very cheaply.
Visa and Mastercard are special companies. While the coming quarterly report will be important, these are stocks that investors should focus on holding for the long term.