Mastercard Inc (MA), Visa Inc (V), American Express Company (AXP): This Credit Card Stock Is a Long-Term Buy

American Express Company (NYSE:AXP) is another credit card company targeting high net worth individuals. 2012 revenue growth of the company was 6% compared to MasterCard’s 12%. However, American Express Company (NYSE:AXP) offers investors a respectable yield well over 1%. Unlike its competitors, the company carries credit risk on its balance sheet that confirms its lower valuation multiple of 12. Although effective expense management helped its Q1 2013 results, the top line of American Express Company (NYSE:AXP) was disappointing. American Express bought back around $4 billion (7% of market cap) of its stock in 2012 which will give dividend investors a reason to cheer. But the normalization of credit will add significant pressure to its future earnings growth that does not make the stock a long-term pick.

Tremendous future potential for MasterCard

As per the latest conference call, Mastercard Inc (NYSE:MA) is aiming for rapid global expansion. It made an entry into Canada with the launch of the Royal Bank of Canada. The recent partnership with Target brings in an entirely new channel of growth for MasterCard. Moreover, it just tied up with Kenya’s equity bank in an effort to venture into African’s huge untapped banking industry. About 80% of Africa is unbanked and MasterCard, with its wide range of offerings, is looking to empower the African customers. In another update, MasterCard is aggressively promoting PayPass, its mobile solution globally. It is also entering the exciting world of virtual payment systems. Recently it signed a MOU with China CITIC Bank for strategic cooperation in the virtual payments space within and outside China. The Chinese electronic payment market is growing strong and if MasterCard properly leverages on this partnership, it is poised for a huge leap.

Conclusion

MasterCard operates the world’s fastest payment processing network. I see the company reaching new highs on increasing volumes in the near future. MasterCard is one of the more expensive companies, but its premium is well warranted by the consistent growth. The stock has outperformed almost everything, ranging from its peers to the benchmark index. Past performance does not always guarantee future performance, however in MasterCard’s case, I believe it will continue to outperform in the long term.

The article This Credit Card Stock Is a Long-Term Buy originally appeared on Fool.com and is written by Tanya Kanodia.

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