What’s Driving Card Processors to All-Time Highs?

Zacks

Riding on steady growth momentum, shares of MasterCard Inc. (MA), Visa Inc. (V) and Total System Services Inc. (TSS) scaled new 52-week highs of $91.14, $273.32 and $38.11, respectively, on Feb 23, 2015. Notably, these are also all-time highs for these three Zacks Rank #3 (Hold) stocks ever since they went public.

Factors Driving the Stride

The market price of these dominant card processing players appears to be benefiting from the recent industry-wide initiatives taken to curb money laundering and cyber thefts, along with the strong pipeline of network. Earlier this month, both MasterCard and Visa rolled out new cyber security features. While MasterCard’s MasterPass is showing positive response, Visa also unveiled ‘Visa Checkout’ to combat fraud and improve customers’ card payment experience.

Taking a step ahead, Total System maintained the US migration toward EMV implementation recently, by allying with TranSEND IT Inc. and B2 Payment Solutions Inc. The company’s ProPay also added Visa Checkout to its checkout options, thereby ensuring seamless and secure payment solutions across digital devices globally.

The companies are taking proactive steps to make their mark in the rapidly growing digital payments space through technology upgrades and strong security protocols throughout the transaction process, thereby driving long-term growth prospects as well. Alongside, MasterCard has been recently boosting its presence through strategic payment alliances in Cuba, Africa and Europe. Even on the balance sheet front, the companies pose a strong capital base. Like MasterCard, Visa’s upcoming stock split should further make the stock affordable.

Meanwhile, an appreciated transaction volumes base has boosted the earnings potential of each of MasterCard, Visa and Total System. All these companies delivered four-quarter trailing positive earnings surprises, with an average beat of 6.7%, 2.2% and 1.9%, respectively.

Tangible Returns

Shares of Visa improved 4.1% since the beginning of 2015 and climbed 10.3% since the release of first-quarter fiscal 2015 earnings results on Jan 29. Average volume of shares traded over the last three months stands at approximately 2,550.9K.

On the other hand, MasterCard shares appreciated 5.8% since 2015-start and about 12% since its fourth-quarter and full-year 2014 earnings release on Jan 30. Average volume of shares traded over the last three months was approximately 4,956.7K.

Meanwhile, shares of Total System jumped 11.6% since the beginning of 2015 and consistently rose 10.8% since the release of fourth-quarter and full-year 2014 earnings results on Jan 27. Average volume of shares traded over the last three months stands at approximately 566.4K.

Additionally, these stocks have outperformed the S&P 500 index’s one-year return of 14.9%, with MasterCard, Visa and Total System generating returns of 20.4%, 22.2%, 25.8%, respectively, over the same period on yesterday’s closing prices.

Risks Ahead?

Though the ride this year has been smooth for most card giants, basking over a solid 2014, we remain wary of the impact of regulations that will be implemented this year. While these companies garner significant revenues from international operations, these are also at constant risk of regulatory challenges from various jurisdictions, which ultimately weigh on expenses and margins.

Visa and MasterCard are already in the process of complying with the regulatory restrictions in Russia, Europe, the UK and the US. The antitrust lawsuit faced by a dominant player, American Express Co. (AXP), has taken a major toll on its stock price and failed to walk with its peers in the latest 52-week high trail.

While we wait and watch the duration and intensity of this growth ride in the card industry, we believe a strong business model, cash flows and capital deployment as well as a risk-averse leverage should continue to boost investor sentiment and drive these stocks higher in the future.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research

Be the first to comment

Leave a Reply