So far in 2018, Visa Inc (NYSE: V) stock hasn’t been able to keep pace with shares of rival Mastercard Inc ( MA). However, Mastercard’s run may soon be coming to an end, making Visa the smarter choice for long-term investors.
Mastercard stock has surged 18.4 percent year-to-date, more than doubling Visa’s 7.3 percent gain. According to Bank of America analyst Jason Kupferberg, the earnings valuation gap between Mastercard and Visa is the largest it has been in nearly five years, suggesting Visa may soon be playing catch-up.
[See: 7 of the Best Stocks to Buy for 2018.]
Kupferberg says Mastercard will maintain its slight competitive advantage over Visa in 2018 and beyond, but it’s not enough to justify a 10 percent forward price-earnings premium.
“We view the current discount as extended in the context of more similar growth rates for V and MA beyond 2018 (ie, consensus EPS growth for 2019 is just slightly higher for MA), and note the last time Visa traded at such a significant discount to MA was the result of unexpected regulatory/legal developments rather than fundamental business performance,” Kupferberg says.
He says investors shouldn’t expect Visa to match Mastercard’s revenue growth simply due to Visa’s larger scale. Visa reported roughly 50 percent more total revenue than Mastercard in 2017.
At this point, however, Kupferberg says Visa has a more attractive valuation and Mastercard’s revenue growth will likely peak in the first quarter of 2018.
“While the consensus preference has shifted significantly to MA over the past six months, we prefer V modestly over MA,” he says.
CFRA analyst Scott Kessler is a bit more cautious on Visa at the moment. Kessler says electronic, digital and mobile payment fundamentals look appealing, but Visa Europe remains a wild card.
[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]
“We think the June 2016 acquisition of Visa Europe made sense for V, as the potential cost savings and earning accretion have been clearly outlined,” Kessler says. “However, we believe the purchase, completed days before the Brexit leave vote, added some risk related to European currencies and economic growth.”
Kessler says Visa’s exposure to China is also a risk given the potential for an economic slowdown.
Bank of America has a “buy” rating and $140 price target for Visa. CFRA has a “hold” rating and $133 target for V stock.
More from U.S. News
10 Investing Themes to Remember for 2018
7 of the Best Blue-Chip Stocks to Buy for 2018
The 10 Best ETFs to Buy for 2018
Visa Inc (V) Stock Is a Better Value Than Mastercard (MA) originally appeared on usnews.com
