Mastercard Inc (MA), Visa Inc (V), Discover Financial Services (DFS): Is There Still Time to Get in on the Payment Processing Boom?

Discover Financial Services (NYSE:DFS) is a different type of payments company, offering credit cards and bank products on a direct basis to consumers in addition to providing payment services to merchants and banks. While Discover Financial Services (NYSE:DFS) is the smallest and most speculative of the three, the company also has the most room for growth in its direct consumer finance business, as well as its payment network. Speaking of its payment network, Discover Financial Services (NYSE:DFS)’s newly implemented partnership with PayPal is still in its infancy and could be very beneficial to both companies if successful.

Discover Financial Services (NYSE:DFS) appears to be extremely cheap at just 10.1 times 2013’s expected earnings, but investors need to keep a few things in mind when considering the company. First, Discover is expected to invest more resources in growing its business, which is expected to lead to lower earnings growth (about 7% per year in the next few years). Additionally, Discover Financial Services (NYSE:DFS) is not as cash-rich as the other two, but still has a solid balance sheet. On the positive side, Discover is the only one of the three that pays what I consider to be a significant yield (1.6%) and has the best buyback record of the three, reducing the outstanding share count by almost 11% over the past three years.

Buy, sell, or hold?

While MasterCard may seem a bit expensive at first glance, I think that shares are still fairly valued at this level. For those who have been invested since the beginning, it would completely make sense to sell at least some of your position and lock in profits. For new investors, my attitude toward MasterCard has shifted from “buy!buy!buy!” to “wait and see” after the dramatic share price gains of the past few years.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard.

The article Is There Still Time to Get in on the Payment Processing Boom? originally appeared on Fool.com and is written by Matthew Frankel.

Matthew 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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