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Visa Stock Is Rising After a Strong Earnings Report. It Could Break Away from Mastercard.

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Stock in Visa was up nearly 9% on Friday morning.
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Visa stock achieved its biggest bounce in nearly two years as investors responded to surprisingly strong financial results by the card network. The price surge, if it holds, could be a sign that the stock may push past Mastercard , Visa’s chief rival. 

Visa (ticker: V) reported sales of $7.1 billion in its 2022 fiscal first quarter, topping estimates by 3.9%, according to FactSet. Earnings per share of $1.81 beat the consensus estimate of $1.70 by 6.3%.

The results impressed analysts and appear to be fueling gains in Visa stock. Shares were up 8.7% on Friday morning to $ 224. The last time Visa stock topped that performance was April 6, 2020.

Mastercard (MA) didn’t react nearly as well after it reported earnings on Thursday morning. The shares closed just 1.7% higher, though its stock also got a bounce on Friday, gaining 4.6% to $366.

Why the divergence? Both companies reported strong gains in key areas like e-commerce and cross-border transactions, including travel-related revenues. And both companies issued mixed guidance for the first three months of 2022, expecting revenues at the upper end of forecasts but also higher operating expenses.

Visa stock may be bouncing in more of a relief rally than Mastercard’s did. The company alleviated several of investors’ concerns, says Mizuho Securities analyst Dan Dolev.

“There was a bigger fear factor on Visa heading into earnings,” Dolev said in an interview. “The fact that they had a good quarter was a sigh of relief that disruption isn’t hitting them quite yet.”

Dolev noted that Visa stock has been under pressure due to several issues, including a spat with Amazon.com (AMZN) over use of its cards in the United Kingdom that recently was resolved in Visa’s favor. Visa is also being probed by the Justice Department over its debit practices. And the company faces pressure from upstart fintechs like Plaid and new digital wallets that threaten to cut the card network out of payment transactions.

Visa’s stock also has a lower valuation that Mastercard’s. Visa trades at 29 times estimated 2022 earnings against a multiple of 34.5 times for Mastercard. Visa could now be making up some of the difference. “What you’re seeing is a correction as the spread in valuation narrows,” said Dolev. He still favors Mastercard, maintaining a Neutral rating on Visa and a Buy on Mastercard.

Other analysts generally praised Visa’s results, sticking with Buy ratings, or the equivalent, on the stock.

JP Morgan analyst Tien-tsin Huang, for instance, maintained an Overweight rating and raised his fiscal 2022 and 2023 revenue and earnings estimates. He noted that Visa sounded more confident about a recovery in revenue from cross-border transactions, expecting a rebound to 90% of 2019 levels by September, well ahead of prior forecasts for the summer of 2023.

While Visa expected some increases in operating costs, he said in a note, “revenue should be the focus,” and Visa’s relatively conservative guidance sets it up for positive revisions. He kept his stock-price target at $277.

MoffettNathanson analyst Lisa Ellis also raised her fiscal 2022 and 2023 earnings estimates, reiterated a Buy rating, and kept her target for the shares at $300.

“Visa has attracted downgrades, doubters, skeptics, and haters as the company’s lackluster performance has stirred up concerns about competition and disruption,” she wrote in a note. “We believe these concerns are overdone.” The cross-border recovery should continue to improve, she notes. And as the overall business recovers, “investor nervousness about disruption risks will subside, supporting the stock’s valuation.”

Susquehanna Financial analyst James Friedman was also in the bull camp. “Visa’s Q1 results make a persuasive argument for a bright future,” he wrote in a note, maintaining a Positive rating and $290 price target.

Darrin Peller of Wolfe Research sounded upbeat, too. “We see the strong print and January trends as supporting shares in the following months on higher estimate revisions,” he wrote. Visa could beat consensus forecasts as consumer spending recovers faster than anticipated, he noted, and as Omicron coronavirus cases start to slow down.

Visa is a top Barron’s stock pick for 2022. It’s now up about 3% on the year, compared with a loss of 8% for the S&P 500. Mastercard isn’t far behind with a 2.8% gain on the year. While it’s still early to call a winner, Visa may be starting to pull ahead.

Write to Daren Fonda at daren.fonda@barrons.com

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