Peer analysis
Mastercard Inc (NYSE:MA): Mastercard Inc (NYSE:MA) is the biggest player in the credit services industry. The company has more diversified revenue when compared to Visa. The US market contributes only 39% to its revenue as compared to 56% for Visa Inc (NYSE:V).
Mastercard Inc (NYSE:MA) has taken several initiatives to increase its presence in the mobile and online transactions. The business of this credit service is more market driven. So we believe the improved macroeconomic conditions and enhanced customer confidence will help the company garner higher revenue in the coming quarter.
American Express Company (NYSE:AXP): American Express Company (NYSE:AXP) posted strong results for the quarter ended in March. The company’s US division posted strong results with a 5% increase in revenue. With the improved consumer sentiments and better macroeconomic condition in the US, we expect the company to post a strong second quarter result ending in July.
The US contributes about half of the revenue of American Express Company (NYSE:AXP). But the company has been undergoing expansion in the international markets as well. In the other countries, the company has teamed up with the financial institutions to issue third party cards. This strategy will enhance the presence of American Express in other countries as well.
Ratio analysis
| P/S ratio | Forward P/E | PEG Ratio | EV/EBITDA | |
|---|---|---|---|---|
| Visa | 11.14 | 21.70 | 1.35 | 17.22 |
| MasterCard | 9.61 | 19.75 | 1.32 | 15.76 |
| American Express | 2.87 | 14.77 | 1.38 | N/A |
Looking at the P/S ratio, Visa is at a premium with respect to its peers. This is because, investors believe that the future prospects for Visa are better compared to its peers. The forward P/E ratio for Visa is also high compared to its peers, while the PEG ratio is comparable.
Conclusion
Visa Inc (NYSE:V) has been making acquisitions to enhance its e-commerce business and also has invested to increase its offerings in the mobile segment. Currently 56% of Visa revenue comes from the US alone, but the company has planned to increase the percentage of international revenue to 70% of its total by 2015. The company has been collaborating with financial institutions and merchants in other countries to use its card. These strategies will help it increase its customers and also provide additional revenue streams. So, I am bullish on Visa stock compared to MasterCard, which has far more global reach, so making further penetration will be difficult for it.
The article What Makes This Credit Services Company a Good Bet? originally appeared on Fool.com and is written by Lalit Kumar.
Lalit Kumar has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard. Lalit is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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