Seeking Alpha
Profile| Send Message| ()  

I recently wrote an article about Visa (V) and why I am bullish on the credit card giant. When looking at Visa's competition, there are several names, but none bigger than MasterCard (MA). When I do my own analysis, I like to make it available online, hopefully helping other investors find the right choice for themselves. Instead of simply doing an analysis on MasterCard, I decided to compare Visa and MasterCard to see which is better. Who knows, perhaps both will have a place in your portfolio.

First let's look at a couple of charts. For the purpose of looking at long-term growth, we will use the 3-year chart for both companies. These charts will use the 50-day, 100-day and 200-day simple moving averages, to show the respective trends over the 3-year time span. The charts will also have RSI measurements and MACD readings. For further simplicity of this article, Visa's data will always be first, followed by MasterCard. Below, the 3-year chart for Visa and MasterCard:

Visa 3-Year Chart (click to enlarge):

Source: Stockcharts.com

MasterCard 3-Year Chart (click to enlarge):

Source: Stockcharts.com

As you can see, both companies have excellent looking 3-year charts. In fact, the two couldn't be better to be honest. This is exactly the kind of thing you want to see if you're a shareholder. Over the last few years, neither company has shown any real weakness. This is evident when you see that neither company has touched its 200-day sma since 2011.

Now we'll take a look at the more recent price action, by using the 1-year charts. This time, we'll use the 20-day, 50-day and 200-day simple moving averages. This will highlight the long-term trend (the 200-day sma), while simultaneously illustrating the short-term trend (the 20-day sma). Below, the 1-year charts for Visa and MasterCard:

Visa 1-year Chart (click to enlarge):

Source: Stockcharts.com

MasterCard 1-Year Chart (click to enlarge):

Source: Stockcharts.com

Again, as a shareholder, what else can you ask for? Both of these charts look great, although I think Visa's looks slightly better. Both of these companies have an upward trending chart, with strong price action pushing it higher. The movement has been slow and steady for the most part, something that's important since we're striving for consistency.

The real challenge between these two is deciphering the growth. Obviously, when choosing between two long-term growth companies, growth is the main component! For a further look, we'll look at revenue and earnings per share (EPS) growth. First, we'll look at the revenue growth from the previous three years (2009-11), the current year (2012), and the future two-year estimates (2013-14). Below is the revenue growth for the aforementioned time span:

Visa's Revenues (In Millions):

Year

Revenues

Change In Revenues ($)

Change In Revenues (%)

2009

6,911

+648

+10.3

2010

8,065

+1,154

+16.7

2011

9,188

+1,123

+13.9

2012

10,421

+1,233

+13.4

2013*

11,500

+1,079

+10.3

2014*

12,800

+1,300

+11.3

(*) = Indicates that these are estimates for the fiscal years of 2013 and 2014.

MasterCard's Revenues (In Millions):

Year

Revenues

Change In Revenues ($)

Change In Revenues (%)

2009

5,099

+108

+2.1%

2010

5,539

+440

+8.6

2011

6,714

+1,175

+21.2

2012*

7,400

+686

+10.2

2013*

8,300

+900

+12.1

2014*

9,300

+1,000

+12

(*) = Indicates that these are estimates for the fiscal years of 2012, 2013 and 2014.

So what can we take away from the two tables above? A lot actually. For starters, it shows that Visa generates more consistent revenues than MasterCard. Although they are estimated to be more consistent, MasterCard spent 2009 and 2010 growing revenues in the single digits, while Visa has managed to keep its revenue growth between 10-15%.

Another thing worth noting is that MasterCard is expected to grow revenues slightly faster than Visa will. Of course, this could change as they are only estimates, but it is worth noting. Also, MasterCard will be reporting 2012 fiscal year results during its Q4 earnings report, scheduled for January 31st, 2012. In light of consistency, I prefer Visa when looking at the two tables above. Although MasterCard has been great the past few years and has appealing estimates, I don't like to be too surprised from my long-term holdings, I like the consistency.

Now we'll take a look at EPS growth. This measures how much and how fast annual earnings are growing -- or contracting -- for the respective companies. The time span will be the exact same as revenues, with the previous three years (2009-11), the current year (2012), and the future two-year estimates (2013-14):

Visa's EPS:

Year

Earnings Per Share

Change In EPS ($)

Change In EPS (%)

2009

2.79

+.53

+23.5

2010

2.69

-0.10

-3.5

2011

3.58

+.89

+33

2012

6.35

+2.77

+77.4

2013*

7.25

+.90

+14.2

2014*

8.36

+1.11

+15.3

(*) = Indicates that these are estimates for the fiscal years of 2013 and 2014.

MasterCard's EPS:

Year

Earnings Per Share

Change In EPS ($)

Change In EPS (%)

2009

11.18

+.69

+6.5%

2010

14.07

+2.89

+25.8

2011

19.07

+5.00

+35.5

2012

21.98

+2.91

+15.25

2013*

25.54

+3.56

+16.2

2014*

N/A

N/A

N/A

(*) = Indicates that these are estimates for the fiscal years of 2012, 2013 and 2014.

This time, the consistency sits with MasterCard, although a lot of things can alter a company's EPS number. Either way, MasterCard has been able to grow its earnings with less fluctuation than Visa. So far though, both companies have proven to be consistent, on the charts and in growth. Below is an outline of several key figures that investors should consider when choosing a long-term investment:

Key Figure

Visa

MasterCard

Winner

P/E Ratio

48

30

MA

2013 P/E Ratio

18.7

20

V

1-Year PEG

1.31

1.23

MA

5-Year PEG

1.17

1.27

V

Market Cap

$105 Billion

$64 Billion

--

Annual Dividend

$1.32

$1.20

V

Yield

0.85%

0.23%

V

Long-Term Debt

0

0

MA & V

Short-Term Debt

0

0

MA & V

Note: There is no winner on market cap, since bigger is not always better. It's only listed to illustrate the differences of the two companies to the reader.

First, let's talk about the valuation of the two stocks. While the current trailing P/E ratios would suggest an overvalued state, the forward-looking P/E ratios do not. At 18 and 20, it suggests these names might be overvalued if they weren't growing. But as we all know, this is not the case from the revenue and EPS growth we looked at earlier.

Valuation in general is important. When you look at the two stocks side-by-side, many might choose Visa. But why? Well probably because Visa costs $157 compared to MasterCard which costs $518. I know this doesn't make sense, as we just saw when comparing the valuations, but many investors work this way, for whatever reason. As you can see from a forward-valuation standpoint, they trade very close to each other in terms of price-to-earnings.

The PEG ratio isn't as widely used as the P/E ratio, but can help shed light on the growth, relative to the valuation. The PEG ratio is calculated by dividing the P/E ratio by the annual EPS growth. If the equation equals 1, it means that the company is fair valued. A reading below 1 would indicate an undervalued stock, while a reading over 1 would indicate an overvalued stock. Oftentimes, growth giants are not valued under 1.

The 1-year PEG ratio favors MasterCard and the 5-year PEG ratio favors Visa. It's important to consider that neither of these measurements are vastly different from one another. When I say favors, I mean it slightly favors one company or the other. The measurements are very close.

Visa has a higher yield than that of MasterCard, but both have a relatively low payout. Both yield under 1%, but then again, we're not buying either of these companies for income purposes. However small, it is nice to see nonetheless. Not a ton of growth companies pay out dividends as well. But shouldn't these companies pay down debts before issuing a dividend?

That's the beauty of these two companies, there's no debt! Zero. Zilch. There's nothing better than checking out a company you have long-term prospect for, to find that it has no debt. When you see that "0" sitting there on the balance sheet, you get much more confident that this is the right company for your portfolio.

So which one wins? Honestly, to the disappointment of all the readers, I like both. Neither have debt, the charts look great, the valuations are very similar. In all honesty, these stocks are very close to the same. If I had to pick just one, I would pick Visa. If you can add both, I would add both, but say you have a philosophy or personal rule, where you can only pick one company per sector or industry. In this case, I would choose Visa.

Visa has a slightly more preferable valuation over the long-term. The P/E ratio is low, the PEG ratio is more favorable and the yield is higher. Revenue growth is more consistent, although it's forecasted to grow slightly slower than MasterCard's revenues. Again, I think it's important to remember that these differences are extremely slight. In the end, these are two excellent companies, with great prospects and fair valuations. The growth is estimated to remain high and I have a very bullish outlook on each of these names.

Source: Visa Or MasterCard: Which One Belongs In Your Wallet?