Wall Street analysts double down on major credit card companies

  • Three major credit card networks — Visa, Mastercard and American Express — were upgraded by Jefferies and Atlantic Equities on Tuesday.
  • Jefferies initiated coverage and a buy rating on both Mastercard and Visa.
  • Atlantic Equities is now overweight on American Express, citing a “highly compelling” valuation.
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Visa, Mastercard and American Express got bullish backings from Wall Street analysts on Tuesday.

Jefferies initiated coverage with a buy rating on Visa and Mastercard. The firm called Visa "the pinnacle of payments," and said it should be able to leverage growth trends even in the event of an economic slowdown.

"We believe Visa is one of the premier businesses across broader financials and the envy of the payments industry given its industry-leading position in terms of payment volume, globally recognized brand, and strong top and bottom-line growth," Jefferies analyst Michael Del Grosso said in a note to clients Tuesday.

Visa is down more than 1.7 percent in the past week but Jefferies is calling it a good time to buy. Year-to-date, Visa is up roughly 3 percent and year-over-year the shares have rallied 8.7 percent. Jefferies has a $170 price target, which is 25 percent higher than Monday's closing price.

"Visa is a defensive play with strong secular growth opportunities and any pullback in shares should be viewed as an attractive buying opportunity longer-term," Del Grosso said.

Visa historically trades at a roughly 8 percent discount to its financial services rival Mastercard, according Jefferies. Del Grosso said Visa's "superior operating margins," and similar secular growth opportunity and revenue growth profile are all reasons for that gap to close.

Jefferies is upbeat on Mastercard, too. The world's second largest payments network stands to benefit as the world continues to shift towards electronic payments, according to Del Gosso.

"With recent acquisitions as well as internal initiatives, Mastercard's growth opportunities have expanded into more than simply a card-based network," he said. "Mastercard is a defensive play with strong secular growth opportunities and we believe current valuation represents an attractive buying opportunity for investors."

Mastercard has rallied 18 percent in the past year, and shares are up 5.7 percent in 2019 alone. Jefferies has a $235 price target on the shares, 17 percent higher than Monday's close.

American Express meanwhile got a stamp of approval from Atlantic Equities, which upgraded the shares to overweight from neutral and raised its price target to $128 from $112. The new target price is roughly 30 percent above where the stock was trading Tuesday.

"As Amex approaches acceptance parity with Visa and Mastercard in the US, there should be less pressure on the discount rate going forward," Atlantic Equities analyst Kunaal Malde said in a note to clients Tuesday.

Atlantic Equities expects Amex to reach roughly 95 percent of Visa and Mastercard's merchant acceptance in the U.S. by the end of this year. The firm is also forecasting 9 percent revenue growth.