With digitization on the rise, fintech companies' popularity has skyrocketed in recent years. Fintech companies frequently use innovative technology to replace traditional, legacy financial services. This innovation has the potential to drive significant growth by tapping into underserved markets or providing more efficient solutions than traditional banks and financial institutions. Moreover, fintech companies' long-term prospects have improved as a result of artificial intelligence (AI) integration.
Companies such as Visa (V) and Mastercard (MA) have sparked significant investor interest in recent years due to their growth potential and disruptive nature. Wall Street rates both of these fintech stocks a “strong buy,” and analysts expect them to soar as the world shifts toward digital payments.
Visa
Visa (V) is a major player in the digital payments industry, enabling fast, secure, and reliable transactions across borders and platforms. Despite the occasional economic downturn and disruption, Visa has shown remarkable resilience over the years. Much of the credit for that can be attributed to its extensive global network.
So far this year, Visa stock is up 7%, compared to the S&P 500 Index’s ($SPX) gain of 25.2%.
Visa reported a strong first quarter, indicating a robust start to the fiscal year. Net revenue rose 9% to $8.61 billion, with adjusted earnings per share (EPS) rising 11% to $2.41. Both revenue and earnings exceeded the consensus estimate.
The company credited strong payment volume, processed transactions, and cross-border volume for driving growth in the quarter. Visa has experienced exceptional growth in the last three years as a result of rebounding post-pandemic travel demand, commonly referred to as "revenge travel." Travel demand remains strong despite geopolitical tensions, which resulted in a 16% increase in Visa's cross-border volume.
Additionally, Visa's study from last year revealed that travel demand will continue to rise, implying further growth in the coming years.
Visa has also upped its AI game through strategic acquisitions. Visa’s agreement with security solutions company Expel aims to incorporate cybersecurity measures into its services. In addition, the company entered into an agreement with Prosa, a payments processor based in Mexico, to expand its digital payment services south of the border.
In January, Visa completed the acquisition of Pismo. With this deal, it plans “to launch innovative payments and banking products within a single cloud-native platform regardless of network, geography, or currency."
Visa is also a dividend stock, yielding 0.75%. While the yield is lower than the financial sector average of 3.18%, the forward payout ratio of 18.7% indicates that there is room for dividend growth.
The company will release its second-quarter results on April 23. Analysts expect revenue and earnings growth of 9% and 19%, respectively.
Looking ahead to the full fiscal year 2024, analysts foresee Visa’s earnings growing by 13% along with a 9.8% increase in revenue. Revenue and earnings could further increase by 10.4% and 12.7%, respectively, in fiscal 2025.
Currently, Visa is trading at 24 times forward 2025 earnings, versus its five-year historical average price-to-earnings ratio of 34x.
Overall, Wall Street rates Visa stock as a “strong buy.” Out of the 27 analysts covering the stock, 19 rate Visa as a “strong buy,” while four recommend a “moderate buy” and four rate it a “hold.” The average target price for V stock is $297.85, which implies an upside potential of around 8.5% from current levels. Its Street-high price estimate of $335 indicates the stock could rise as high as 22% in the next 12 months.
Mastercard
Mastercard (MA), like Visa, has a long history of providing global payment solutions that are both seamless and secure. Its global footprint includes more than 210 countries and territories. Despite the macroeconomically challenging environment and geopolitical issues, Mastercard has demonstrated resilience. Mastercard's stock is up 10.2% this year, outpacing the broader market.
Global travel demand also increased Mastercard's cross-border volume by 18% in the most recent fourth quarter. Total revenue increased 13% to $6.5 billion, with adjusted EPS up 20% to $3.18. Both revenue and earnings exceeded analyst expectations.
For the full year, revenue and earnings rose by 13% and 15%, respectively. Michael Miebach, CEO of Mastercard, stated, “We delivered strong earnings and revenue growth for the full year 2023, driven by healthy consumer spending, cross-border volume growth of 24 percent, and the solid execution of our strategy.”
Similar to Visa, Mastercard pays a dividend yield of 0.56%, and the payout ratio of 15.7% suggests that those dividends are sustainable and could grow. In the fourth quarter, the company generated $10.8 billion in free cash flow, which it used to repurchase 4.5 million shares and pay dividends totaling $534 million.
The rapid expansion of the digital payments market provides Mastercard with significant long-term opportunities. The company will release its first-quarter 2024 results on May 1. Analysts expect revenue and earnings growth rates of 11.2% and 31.2%, respectively.
Furthermore, analysts predict that Mastercard's revenue and earnings will grow by 12% and 17.4% year-on-year in 2024. The stock is currently trading at 28 times forward estimated 2024 earnings, compared to an average price-to-earnings ratio of 40 over the previous five years.
On Wall Street, Mastercard is a "strong buy.” Out of the 28 analysts that cover the stock, 24 have given it a “strong buy” rating, while three have a “moderate buy” rating and two analysts recommend a “hold.” The mean target price for Mastercard stock is $485.93, which is 3% above current levels. The Street-high price estimate of $545 implies a potential upside of 15.9% in the next 12 months.
Mastercard's strong financial performance, which includes consistent revenue growth, strong margins, and ample cash flows to fund innovative offerings, makes it an appealing growth stock. Furthermore, its commitment to returning shareholder capital through share repurchases and dividend payments makes it an excellent income stock, as well.
