Modern consumer commerce would probably grind to a halt without credit cards so I thought it's time to look at the big three credit cards and see how they compare. Some may wonder why I'm not including American Express in this comparison and that's because they've had some real challenges lately and their earnings have recently gone the wrong way. I'm sure they'll recover and I intend to look at them in a later analysis but for today I've chosen to compare just these three.
Visa Inc., a payments technology company, operates an open-loop payments network worldwide. The company facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities. It operates VisaNet, a processing network that enables authorization, clearing, and settlement of payment transactions; and offers fraud protection for account holders and assured payment for merchants. The company also provides a suite of digital, ecommerce, person-to-person payments, and mobile products and services. In addition, it offers merchant gateway services for ecommerce merchants to accept, process, and reconcile payments; manage fraud; and safeguard payment security online, as well as processing services for participating issuers of visa debit, prepaid, and ATM payment products. The company provides its services under the Visa, Visa Electron, Interlink, and PLUS brands. Visa Inc. has a strategic alliance with Bottomline Technologies. The company was incorporated in 2007 and is headquartered in San Francisco, California.
(Summary) (Company) (Chart)
MasterCard Incorporated, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. It facilitates the processing of payment transactions, including authorization, clearing, and settlement, as well as delivers related products and services. The company also offers value-added services, such as loyalty and reward programs, and information and consulting services. In addition, it provides cross-border and domestic processing services; and issuer and acquirer processing solutions, and payment and mobile gateways. Further, the company offers various payment products and solutions for cardholders, merchants, financial institutions, and governments; programs that enable issuers to provide consumers with cards to defer payments; payment products and solutions that allow its customers to access funds in deposit and other accounts; prepaid payment programs and management services; and commercial payment products and solutions. Additionally, it provides products and services to prevent, detect, and respond to fraud and ensure the safety of transactions. The company offers payment solutions and services under the MasterCard, Maestro, and Cirrus brands. MasterCard Incorporated was founded in 1966 and is headquartered in Purchase, New York.
(Summary) (Company) (Chart)
Discover Financial Services operates as a direct banking and payment services company in the United States. It operates in two segments, Direct Banking and Payment Services. The Direct Banking segment offers Discover-branded credit cards to individuals; and other consumer products and services, including private student loans, personal loans, home equity loans, and other consumer lending, as well as deposit products, such as certificates of deposit, money market accounts, savings accounts, checking accounts, and individual retirement arrangement certificates of deposit. The Payment Services segment operates the Discover Network, which processes transactions for Discover-branded credit cards, and provides payment transaction processing and settlement services; and PULSE network, an electronic funds transfer network that provides financial institutions issuing debit cards on the PULSE network with access to automated teller machines and point-of-sale terminals. This segment also operates the Diners Club International, a payments network that issues Diners Club branded charge cards and provides card acceptance services. The company was incorporated in 1960 and is based in Riverwoods, Illinois.
(Summary) (Company) (Chart)
| VISA Price $74.67 1yr Target $88.50 Analysts 30 Dividend $0.56 Payout Ratio 21.78% 1yr Cap Gain 18.52% Yield 0.74% 1yr Tot Return 19.26% P/E 29.04 PEG 1.86 Beta 0.84 EPS (ttm) $2.57 EPS next yr $3.28 Forward P/E 22.77 EPS next 5yr 15.61% 1yr Price Support $51.20 Market Cap $177.34 Bil Revenues $14.28 Bil Earnings $6.84 Bil Profit Margin 47.89% Quick Ratio 4.70 Current Ratio 4.70 Debt/Equity 0.54 1yr RevGR 9.27% 3yr RevGR 9.92% 5yr RevGR 11.46% 1yr EarnGR 19.44% 3yr EarnGR 47.78% 5yr EarnGR 20.87% 1yr DivGR 19.04% 3yr DivGR 26.03% 5yr DivGR 30.71% ROA 14.50% ROE 23.40% | MasterCard Price $88.24 1yr Target $108.47 Analysts 30 Dividend $0.76 Payout Ratio 22.89% 1yr Cap Gain 22.92% Yield 0.86% 1yr Tot Return 23.78% P/E 26.59 PEG 1.67 Beta 0.99 EPS (ttm) $3.32 EPS next yr $4.13 Forward P/E 21.36 EPS next 5yr 15.92% 1yr Price Support $65.74 Market Cap $94.75 Bil Revenues $9.88 Bil Earnings $3.75 Bil Profit Margin 37.95% Quick Ratio 1.60 Current Ratio 1.60 Debt/Equity 0.61 1yr RevGR 2.39% 3yr RevGR 9.26% 5yr RevGR 11.78% 1yr EarnGR 8.06% 3yr EarnGR 15.05% 5yr EarnGR 18.97% 1yr DivGR 36.73% 3yr DivGR 76.39% 5yr DivGR 62.02% ROA 24.20% ROE 62.00% | Discover Price $52.33 1yr Target $62.95 Analysts 22 Dividend $1.12 Payout Ratio 21.57% 1yr Cap Gain 20.29% Yield 2.14% 1yr Tot Return 22.43% P/E 10.08 PEG 1.32 Beta 1.16 EPS (ttm) $5.19 EPS next yr $6.08 Forward P/E 8.61 EPS next 5yr 7.65% 1yr Price Support $46.51 Market Cap $21.53 Bil Revenues $8.10 Bil Earnings $2.24 Bil Profit Margin 27.65% Quick Ratio --- Current Ratio --- Debt/Equity 0.00 1yr RevGR 4.06% 3yr RevGR --- 5yr RevGR --- 1yr EarnGR 4.69% 3yr EarnGR --- 5yr EarnGR --- 1yr DivGR 16.66% 3yr DivGR --- 5yr DivGR --- ROA 2.60% ROE 20.80% |
My Perspective
It's pretty obvious that these credit card companies are making a lot of money. Just looking at the profit margins would make the management of any company drool. Look at the dividend growth rates and any dividend growth investor starts to drool too. Looking at the Quick and Current Ratios tells any investor that the dividend is pretty secure and that there's plenty of assets to cover any future raises for years to come. Add in a growing earnings stream and a low payout ratio and it's pretty obvious that the dividends will move higher in the years ahead.
Of the three companies listed above, the data is a little sketchy on Discover Financial Services. Therefore I expect to wait for more data before I invest in Discover. But the other two companies easily meet my criteria for accumulation. So what to do?
For me, it's going to the technical charts. And today the charts look very similar. It's easy to say that MasterCard has pulled back a little farther so it could be thought that it's slightly cheaper than VISA, but it can also be said that VISA has held up a little better than MasterCard. It's all about interpretation.
Looking at the the one year estimated return on investment, the dividend yield, the P/E ratio and the PEG, MasterCard has a slight edge. Looking at revenue, earnings and dividend growth rates, VISA has a slight edge. And once again it's a toss up.
My strategy will be to monitor both of these companies until I receive additional funds and then buy the one with the best technical chart at that time, but I really don't think it'll matter which one. Both their fundamentals as well as their technicals seem to mimic each other. And that just reinforces the idea that this is a great industry to invest in. And maybe get some of that interest back that at times I'm charged on my credit cards.
Of the three companies listed above, the data is a little sketchy on Discover Financial Services. Therefore I expect to wait for more data before I invest in Discover. But the other two companies easily meet my criteria for accumulation. So what to do?
For me, it's going to the technical charts. And today the charts look very similar. It's easy to say that MasterCard has pulled back a little farther so it could be thought that it's slightly cheaper than VISA, but it can also be said that VISA has held up a little better than MasterCard. It's all about interpretation.
Looking at the the one year estimated return on investment, the dividend yield, the P/E ratio and the PEG, MasterCard has a slight edge. Looking at revenue, earnings and dividend growth rates, VISA has a slight edge. And once again it's a toss up.
My strategy will be to monitor both of these companies until I receive additional funds and then buy the one with the best technical chart at that time, but I really don't think it'll matter which one. Both their fundamentals as well as their technicals seem to mimic each other. And that just reinforces the idea that this is a great industry to invest in. And maybe get some of that interest back that at times I'm charged on my credit cards.
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