Visa Inc.

V Details

Visa and PayPal Partnership Extension:  Visa Inc. (NYSE: V) is global digital payments technology company with a market capitalization of ~$421.34 billion as on 23 October 2020. On 10 September 2020, Visa has announced extension of partnership with PayPal, primarily focusing on increasing real time access to funds transfer through Venmo or Xoom and PayPal which will help small business and consumers. 

Third Quarter Financial Performance:  The company has announced the results for the third quarter of FY20, wherein it reported a fall of 17% in revenue, on GAAP basis to $4.8 billion, impacted by declined payments and processed transaction volume due to an impact of Covid-19 on operating environment on all markets. The net income, on GAAP basis, reported a decline of 23% on y-o-y basis to $2.4 billion. Furthermore, operating expenses, on GAAP basis decreased by 5% to $1.8 billion on y-o-y basis. Earnings per share decreased to $1.07 cents in Q3 FY20, representing a fall of 22% on y-o-y basis. On 20 July 2020, the company had declared a quarterly cash dividend of $0.30 per share, payable on 1 September 2020 for Class A common stock. Also, in the form of share repurchases and dividends, the company has paid $1.6 billion of capital to its shareholders. As at 30 June 2020, the company cash, cash equivalents and investment securities stood at $17.2 billion.

Quarterly Financial Highlights (Source: Company Reports)

Outlook:  The breakout of COVID-19 has taken a toll on the global economy and the company has not released any guidance due to uncertainty about the future performance. The company announced to release its fourth quarter and full year 2020 financial results on 28 October 2020.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters) 

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation: The stock of Visa gave a return of 18.34% in the past six months and gave a return of 1.46% in the last three months. The stock is trading close to its 52-weeks’ high level of $217.35. On a technical front, the stock of V has an immediate support level of ~$193.40 and a resistance level of ~$214.25. We have valued the stock using the P/E multiple based illustrative relative valuation and have arrived at a target price with limited upside (in % terms). For the purpose, we have taken peers like Mastercard Inc. (NYSE: MA), PayPal holding Inc (NYSE: PYPL), and Global Payments Inc (NYSE: GPN). Hence, in the light of upcoming results on 28 October 2020, Covid-19 led uncertainties and valuation, we suggest investors to “Avoid” the stock at the current market price of $198.01, up by 0.01% on 23 October 2020.

V Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Mastercard Inc.

MA Details

Pilot Fingerprint Biometric Card in Asia:  Mastercard Inc. (NYSE: MA) is a global technology company that provides electronic forms of payment by creating a range of payment solutions and services. As on 23 October 2020, the market capitalization of the company stood at ~$329.96 billion. On 21 October 2020, the Mastercard has teamed up with Idemia and Matchmove to implement first pilot in Asia of a biometric card that enables fingerprint authorization to make the payments in stores. This project will move the safe and secure route to make payments from a smartphone to a smart card by reducing touch points in public places.

Other Recent Updates: Recently, the company has commenced partnership with Stride, which offered coverage plans to its cardholders. The coverage will provide low-cost dental and vision insurance, quality health insurance, tax withholding estimation and guidance, and income and expense management tools, including local deals and discounts. Marqeta and Mastercard expanded their partnership as per announcement on 8 October 2020. The move will aid both companies to expand in new geographies, by launching additional cards programs and open access to new products.

Second Quarter Financial Performance: During 2QFY20, the company posted net revenue of $3.3 billion, on GAAP Basis, down by 19% on y-o-y basis, owing to the impact of COVID-19 pandemic on the transaction companies. Revenues during the quarter includes 1% benefit from the acquisitions. The decline in the top line was due to a 10% decrease in gross dollar volume, on a local currency basis. Further, decline in cross-border volume along with decreased switched transactions negatively impacted quarterly’s revenues. Diluted Earnings per share, on GAAP basis, decreased by 30% to $ 1.41, while net income on GAAP basis came at $1.4 billion, reporting a decline of 31% over Q2 FY19. The company’s operating income stood at $1.7 billion, down 29% on a year over year basis. As at 30 June 2020, the company has paid $401 million in dividends. Quarter to date through 27 July 2020, Mastercard had bought back ~3.3 million shares under repurchase authorization program, leaving $5.9 billion of remaining shares.

Quarterly Financial Highlights (Source: Company Reports)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

 P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company announced to release its third quarter 2020 financial results on 28 October 2020. The stock of the company went up by 7.39% in the past three months and is currently trading close to its 52-week high level of $367.25. On a technical analysis front, the stock has a support level of ~$321.26 and an immediate resistance level of ~$354.03. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price of lower double-digit upside (in percentage terms). For the purpose, we have taken peers like Visa Inc. (NYSE: V), PayPal holding Inc (NYSE: PYPL), and Global Payments Inc (NYSE: GPN), to name few. Considering the factors mentioned above, recent partnerships, modest Q2FY20 results, decent returns in past three months and valuation, we give a “Hold” recommendation on the stock at the closing price of $329.61, down by 1.2% on 23 October 2020.

MA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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