I've said on many occasions that I prefer MasterCard (NYSE: MA) to Visa (NYSE: V). No, I don't mean the card products themselves. I mean the stocks. I believe Visa has better brand equity associated with it, and I think it possesses a little more depth and fundamental prowess. However, both of these companies operate on the same basic economic model: collect fees on transactions, and don't take on loan risk. So, both MasterCard and Visa do offer compelling long-term investment theses.
And, even though there were some negative outlooks on MasterCard's latest earnings report, which was released Tuesday, I have to say that I didn't find the situation too disturbing. Revenues increased only 2%. The top line was inhibited by currency effects, but it's not like we haven't heard that story before. More importantly, MasterCard posted adjusted income of $3.48 per share, representative of a 40% increase over the adjusted income recorded a year ago.
According to our preview, MasterCard was only supposed to make $2.94 per share. So far, I'm happy with the results. Why didn't the market give MasterCard a big boost yesterday?
Two news articles offer clues. This Bloomberg piece mentions an analyst's concern over the reduced advertising expenditure, believing that this factor essentially drove the positive earnings performance; the item also covered continued litigation risk. Reuters discusses the questionable holiday economy and its potential effect on MasterCard.
Hey, these issues are worthy of examination. At the end of the day, though, don't ask me to be a bear on MasterCard. Again, I like Visa better, but I don't want to come down on this business. In my opinion, MasterCard is a better bet than either American Express (NYSE: AXP) or Discover Financial Services (NYSE: DFS) because of the absence of loan exposure. And if the economy starts to tank again, plenty of consumers will be reaching for the plastic, either to charge goods and services or to pay for them via a debit card attached to a checking account. Either way, it's good for shareholders. Look to get MasterCard on pullbacks if your due diligence checks out.
Disclosure: I don't own any company mentioned; positions can change without notice.
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