In terms of share-price growth, however, analysts expect MasterCard’s stock to rise by more than 8% over the next year. Most of that expectation is based on compound sales growth-rate estimates for the next five years in the mid-teens, as well as improvement in the operating cash flow margin to the mid-to-high 30s.
Likewise, Visa Inc (NYSE:V) is also expected to move forward with growth in its share price. One potential catalyst for this is due to the company’s strong revenue growth along with improvement in its balance sheet. In fact, the company literally has no debt to speak of – which is viewed as an extremely favorable sign.
This large technology company engages in operating retail electronic payments across the globe. It also helps in facilitating commerce via the transfer of value and related information among various financial institutions.
Things look good for the largest retail-payments network in the world. The company earns most of its income from its card-service fees – roughly 40% of the total, as well as from data processing and international transaction fees.
Backed by the international volume increase of almost 10%, Visa Inc (NYSE:V) reported strong revenue growth from the international markets in the first quarter. Going forward, Visa also sees increased revenue from the improving transaction and assessment fees in those markets. The company’s plans to continue the expansion of its payments network – specifically in the area of international markets – can payoff nicely, especially as emerging markets are just now transitioning into the mainstream use of non-cash payment options.
Visa Inc (NYSE:V)’s gross profit margin is also quite positive, coming in at more than 80%. Also impressive was first-quarter net income, which rose by more than 25% compared to the year-ago quarter and beat analysts’ estimates by a wide margin. These financials helped to move Visa’s share price up by more than 38% over the past year – a price that is justified by the company’s low PEG ratio of 1.2.
Expansions
Just as with Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V), Discover Financial Services (NYSE:DFS) may need to expand deeper into international markets in order to keep its growth pace on track. Many such markets are akin to what the US was like back in the 1990s when, even though credit was available, it was not yet considered to be a primary purchase method until the following decade.
These large financial institutions will also need to continue monitoring the credit history of their new consumer and business credit-card holders, as the recent economic downturn has led to a higher number of unpaid accounts.
The bottom line
All three of these companies have the ability to offer investors a nice amount of growth – both in the short run and long run, provided that they keep debt levels low, their fee levels in check, and expand their services where needed. As both US and worldwide societies continue to use cash on a less frequent basis, the credit card companies will have room to profit and grow, meaning positive results for their shareholders as well.
The article Investors Discover That Credit Companies Can Pay Off originally appeared on Fool.com.
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