Visa Inc (V), Mastercard Inc (MA): Pay Attention To This Space

Visa doesn’t look cheap compared to its peers on standard valuation metrics, but a big part of that is because of a one-time settlement charge that will fall off the books by the end of this year. When adjusting for that charge to better reflect normal operating procedures, Visa looks a lot more reasonable:

Sources: YCharts, Yahoo! Finance, and Visa earnings reports.
*Visa earnings for trailing 12 months adjusted to remove $4.1 billion litigation provision and recalculated based on 2011 tax rate .
**Visa free cash flow for TTM adjusted to remove $4.1 billion litigation provision .

In general, these numbers all line up well. Visa Inc (NYSE:V) is the top dog in payment processing and is afforded a much higher growth rate than the two lender-processors, which explains the discrepancy in valuations even after accounting for the one-time charges. There’s every reason to expect Visa to continue to grow, as the United States still accounts for an estimated 40% of global non-cash payments volume , despite accounting for only 20% of global GDP . Credit cards account for roughly 60% of all non-cash payments in mature Asian and North American markets, but less than 40% in the BRIC countries and in Europe. Keep in mind that cash is still the predominant payment method around the world.

In the long run, it makes more sense to bet on the growth of credit cards, as long as you anticipate the expansion of a strong consumer culture throughout the world. Visa Inc (NYSE:V) has the best position from which to drive that expansion, so it makes sense that its growth opportunities would be reflected in premium pricing. 

The article This Credit Card Industry Leader Still Has Great Global Opportunities originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard.

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