Consider Adding Shares of These Payment Processing Kings Now
Visa (NYSE:V) and
Mastercard (NYSE:MA) are two of the most important names in the digital payments industry. These global leaders have forever changed the way that consumers, businesses, and governments handle financial transactions and are companies that play a crucial role in the economy. While the pandemic certainly resulted in negative impacts to each one of their businesses, investors are starting to see some encouraging signs that transaction volumes are getting back to normal.
This bodes well for these strong companies in the near term, and investors that are interested in the long-term growth story of electronic payments should be very interested in building positions in either Visa, Mastercard, or both. There are quite a few reasons to consider adding shares of these payment powerhouses to your shopping list, but we’ve narrowed it down to 3 below.
Both Companies Just Delivered Earnings Beats Both Visa and Mastercard have very similar business models and operate the largest and second-largest electronic payments networks, respectively, which is why it’s a good sign that both of them beat consensus estimates on their latest earnings reports. Let’s start with Visa, which beat the consensus Q1 adjusted EPS estimate by $0.11 with $1.81 on net revenues of $7.1 billion, up 24% year-over-year. Visa’s quarter was especially encouraging thanks to the way travel spending is bouncing back and how the company is taking advantage of the growth in the eCommerce industry. These are trends that should continue benefitting the company in 2022 and beyond.
Mastercard also delivered a solid Q4 earnings
beat by $0.14 with adjusted EPS of $2.35 on net revenue of $5.2 billion, up 27% year-over-year. The company’s management team believes that Omicron is not going to be a long-term detriment to earnings, which is certainly a positive to consider. Perhaps what’s most interesting about both of these earnings beats is how investors reacted to the reports, as both Visa and
Mastercard shares rallied sharply following the releases. Several analysts increased their price targets on these payments giants as well, which is another positive to consider.
Cross-Border Transaction Volume is Improving Cross-border transactions, which are financial transactions made by purchasers outside of their home country, are especially important for both Visa and Mastercard’s business models. That’s because the companies are able to generate higher fees due to the added complexities of international payment processing. It makes sense that analysts and investors would pay extra close attention to this metric each quarter, and another reason why investors should be particularly intrigued with these stocks at the moment is the fact that cross-border transaction volume is improving for both businesses.
Visa reported that its cross-border volume increased by 40% year-over-year in Q1, while Mastercard saw its cross-border volume jump by 53% in Q4. These large increases tell investors that travelers are once again heading out into the world and spending money, and there’s a good chance these companies will have even stronger growth in quarters ahead once the threat of the latest COVID variant starts to diminish. Combine this “travel recovery” theme with the continued expansion of electronic payments networks and you have a recipe for strong upside.
Commitment to Rewarding Shareholders Finally, investors should consider adding shares of Visa and Mastercard at this time given the way that both companies are committed to rewarding long-term investors with dividends and share buybacks. Visa returned $4.9 billion of capital to shareholders in Q1, while Mastercard returned $1.7 billion in Q4. These companies are generating a ton of excess cash each quarter that is essentially heading right into investors’ pockets, and it’s hard to imagine that trend changing anytime soon.
Mastercard stock currently offers investors a 0.51% dividend yield and has roughly $11.4 billion remaining in approved share repurchase programs. On the other hand, Visa stock offers a 0.66% dividend yield and just authorized a new $12 billion share repurchase program. The bottom line here is that it’s hard to find many companies offering the same combination of earnings growth potential, dividends, and share buybacks, which is another great reason to consider adding shares of these quality companies for the long haul.
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