You might no longer have to decide between cash or credit, since the leading credit card companies in the world also offer compelling growth prospects and promise to deliver plenty of cash to stockholders over the years. Visa Inc (NYSE:V), American Express Company (NYSE:AXP), and Mastercard Inc (NYSE:MA) are the leading companies in the industry and, most certainly, the most famous credit card brand names throughout the world. Below, I will look into them in order to determine which ones could provide good returns for your money.
The payments Goliath
Visa Inc (NYSE:V) is one of the best-known credit card and payments companies around the world. Operating in over 200 countries, its brand is as strong as it gets, and so is its moat; thousands of banks and financial institutions worldwide issue Visa cards, which, in time, charges them variable fees for each monetary transaction process.
Merchants usually absorb the largest percentage of the service charges, creating some resistance among them. However, not accepting this card would result in detrimental loses at many locations, a fact which forces the sell-side to use this company’s system as well.
But, not only banks and shop-owners need Visa Inc (NYSE:V)’s services. Individuals must chose to use Visa over other credit cards, too, and this is where the company’s brand name comes back in. People know that using Visa cards is convenient in many ways and feel reassured by its trustworthy reputation.
People seem to be moving away from paper-based payments and into other methods. This should benefit Visa Inc (NYSE:V) over the years, as countries around the world continue to develop their economies. The company is also very strong in the electronic payments segment, which will also provide plenty of growth opportunities in upcoming years, especially as internet transactions increase. With a solid balance sheet, no debt, and plenty of cash available for future purchases, Visa seems well-positioned to explore this growth avenue that has delivered compelling early results.
Having posted strong results last quarter and repurchased $1.8 billion in stock, while yielding some dividends (0.67%), this company looks attractive. Despite its valuation at 50 times its earnings, more than double the industry average, I would recommend buying this stock on account of its strong, moated brand, and its growth prospects – EPS is expected to rise by around 18.5% each year over the next five.
The second runner-up
Mastercard Inc (NYSE:MA) is the world’s second-largest credit card company, with an approximate market share of 31% – only beat by Visa Inc (NYSE:V)’s 63%. The system works just like Visa Inc (NYSE:V)’s; through a strong brand name, the company creates incentives for merchants and financial institutions to use MasterCard’s services. Once again, getting individuals to use Mastercard Inc (NYSE:MA) over cash or other cards remains a challenge. However, the company’s most successful marketing campaign has led people around the world to believe that “there are some things money can’t buy.For everything else, there’s MasterCard.”
A strong brand recognition should also help the company enter new markets, where merchants tend to prefer well-known worldwide brands. These under-penetrated markets provide huge expansion opportunities for the firm. Over the past few years, increasing cross-border volumes have provided evidence to back this hypothesis.
Mastercard Inc (NYSE:MA) is also poised to benefit from the ever-increasing use of credit cards and electronic payment methods over paper-based ones. The firm’s hard-to-duplicate scale and network reach provide it with an edge over existing competitors and new entrants. Moreover, the current payment volume usually requires less than 70% of the network’s operating capacity, leaving plenty of room for growth before hefty investments are needed.
The company has a strong balance sheet and substantial amounts of cash available for spending (management has made prudent and profitable investments in the past). With no long-term debt due over the next few years, and an above-average expected EPS growth rate of 17%-18% per year, this stock looks like a long-term BUY. Although its valuation at 25 times its earnings is a little higher than the industry average of 20 times, I believe that the company is worth the premium. Moated and poised to grow, while returning value to investors through stock repurchases and dividend payouts, this is a company you should hold on to.