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MasterCard or Visa? One Analyst Weighs In

Credit cards
SXC
Credit cards

MasterCardbeat its earnings forecaston Thursday, causing its shares to jump in trading, but one analyst said investors should own MasterCard stock and Visa's shares equally.

“We had preferred Visa slightly coming into this year,” said Robert Napoli, an analyst with William Blair & Company. “Visa’s outperformed by a little bit, but we actually, at this level, think investors should own both, 50-50. I know that’s a cop-out, but at the current valuation and growth rates, we think that’s reasonable.”

Last year, MasterCard posted 66 percent upside, while Visa grew 44 percent. Calling his decision a “close call,” Napoli added that both companies are trading at about the same valuation.

“They’re still top picks of ours,” he said. “You’re not going to get the outsize gains you had, but they’re still attractive.”

MasterCard posted earnings excluding items of $4.03 a share on revenue of $1.72 billion. Analysts had expected the company to report earnings excluding items of $3.91 per share on revenue of $1.72 billion. It also raised its guidance.

MasterCard is currently trading at about 14 times projected 2013 earningsand growing earnings at about 20 percent, Napoli added.

“Just keep the same multiples you have today, you should get 20 percent — you know, about 20 percent upside on each of the stocks,” he said.

During the quarter, the company incurred a $495 million charge related to U.S. merchant litigations about the fees they pay on credit card transactions. Although Napoli said this charge does not spell the end of the litigation story, he does think that the “worst-case scenario is off the table.”

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Disclosures:

William Blair & Co. is a market maker in the securities of MasterCard and Visa, and may have a long or short position.

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