Visa Inc (V), And How This Can Assist Mastercard Inc (MA)

Management knows U.S. credit holds opportunity. In a recent conference call, CEO Ajay Banga noted:

We know that U.S. consumer credit is what we have to work on. We have got a series of things that we’ve been doing over the last period of time to try and improve the trajectory of our U.S. consumer credit spend growth …

I think [consumers] are still behaving the way they choose to behave which to use their debit when they want and their credit when they want. They have affected more by overall trends in the economy. So, I think as the U.S. economy continues to recover generate jobs and the like you will probably see an increase in credit spending that may be faster than debit.

Mastercard Inc (NYSE:MA) trades at 20 times next year’s earnings estimates. That’s rich. But is it too rich? Earnings have grown at an annualized rate of 21% for the last four years. And growth should pick up with the end of deleveraging. When thinking about MasterCard’s valuation, keep in mind what Charlie Munger once said:

If a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.

MasterCard is a wonderful business with a moat as strong as ever. Despite a rich price, shareholders could end up with one hell of a result.

The article How the End of Debt Deleveraging Could Help MasterCard originally appeared on Fool.com and is written by Morgan Housel.

Fool contributor Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard and Visa.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.