What Does Billionaire Ken Griffin’s Citadel See In Visa Inc (V)?

Visa Inc (NYSE:V) is best compared to Mastercard Inc (NYSE:MA) as the two are the leading credit card brands, but we would also consider American Express Company (NYSE:AXP), Capital One Financial Corp. (NYSE:COF) and Discover Financial Services (NYSE:DFS) as peers. Mastercard experienced an 8% rise in revenue in the first quarter of 2013 versus a year earlier, and as in Visa Inc (NYSE:V)’s case its margins did well. It too carries a premium valuation, however, with trailing and forward P/Es of 25 and 19 respectively. It’s also noteworthy that, like Visa, Mastercard actually has a fairly low beta at 0.6.

American Express also looks a bit pricy to us, at 19 times its trailing earnings, and that company’s recent results have been fairly modest. Specifically, last quarter its revenue and net income each changed by less than 3% compared to the first quarter of 2012. Between that and the valuation, we would avoid the stock. Capital One and Discover are closer to value territory, with trailing P/Es in the 10-11 range, and therefore don’t need particularly strong performance going forward to justify their current valuations. Capital One, which also trades at a small discount to the book value of its equity, has been experiencing a drop in pretax and net income but might be worth tracking in the event the company recovers. As for Discover, that company has at least been experiencing growth and with analysts not calling for a particularly challenging 2014 it might be worthy of further research.

For the most part, there’s a fairly straight correlation between valuation and recent performance in this peer group, though American Express and Capital One seem like stocks to avoid at least for now. We aren’t sure that we’d want to depend on Visa or Mastercard continuing their impressive growth numbers, however, despite Griffin’s apparent confidence in Visa’s ability to do so, and so a more in depth look at the industry would likely start with Discover.

Disclosure: I own no shares of any stocks mentioned in this article.