In the highly contested payment industry, three giants are undisputed leaders. But, are they a safe, worthy investment. In this article will look at American Express Company (NYSE:AXP), Mastercard Inc (NYSE:MA), and Visa Inc (NYSE:V) in order to find out if any of them is worthy of investment.
American Express: Superb growth drivers
Although many doubted that American Express Company (NYSE:AXP) could deliver strong results, the earnings report for Q1 2013 proved them wrong; the company reported 7% growth in quarterly EPS (year over year) and 23% return on equity, a rate higher than 90% of the 34 companies that provide Credit Services in the U.S. and the 68 firms doing this globally.
Two main drivers of this success can be highlighted: the growth in net income, from previous quarter’s $637 million to $1.3 billion in the quarter, and the decline in shares outstanding, from 1.141 billion in 2012´s last quarter to the current 1.106 billion.
Another of American Express Company (NYSE:AXP)’ growth drivers is its high-spending customer (or cardholder) base, which has encouraged many businesses to pay American Express Company (NYSE:AXP) higher transaction fees. To push this advantage even further, the company is now trying to allure a wider cardholder base with the introduction of the Serve and Bluebird initiatives, both offering a prepaid card service and some other basic features.
Despite these encouraging signals, some concerns like the stock price of $67.24 being close to its 10 year high of $67.46 and the dividend yield (1.2%) being close to a three year low, divide opinions. While Ken Fisher bought over 10 million shares in Q1 2013, adding 19.94% to his stake in the company, The Yacktman Fund and Focused Fund sold out.
Even though the company´s share price has been rising for three years now, Zacks´ performance calculations are also conservative, projecting an upside of approximately 4.5% within the next 12 months.
MasterCard: A huge moat in the payments industry
Opinion on Mastercard Inc (NYSE:MA) is strongly divided. While some analysts, like Zacks, advise to sell the stock, others, like Barrons, recommend buying. We shall see the reasons that would lead one to buy or sell in order to make an informed decision.
Zacks estimates a neutral stock performance, fixing a target price of $553 by March 2014, and recommends selling, mainly due to increasing operating expenses and several lawsuits faced by the company that could result in losses.
However, many other analysts advocate buying Mastercard Inc (NYSE:MA). Understanding the reasons is not very difficult, given the company’s exceptional financial strength driven by its freedom from debt. In addition to this, several other ratios back the company’s expected performance: operating margin (53.3%), net margin (37.3%), and return on assets (22.1%) are at the highest in the firm’s history, while return on interest (39.9%) and revenue growth (10.8%) are considerably close to historical highs.
Also to be taken into account is the P/E ratio of 23.6. Currently trading at a higher multiple than most of its peers, it reflects better prospects for future EPS growth. Mastercard Inc (NYSE:MA)´s trailing P/E ratio is still one of the lowest in the firm´s history, trading at less than 1/6 of the pre-crisis ratio.