In this article, I have assessed two prominent financial stocks, Visa Inc. (V) and Nu Holdings Ltd. (NU), to identify the superior investment option. However, before delving into their details, let's examine the landscape of the consumer finance sector.
In the recent meeting, Federal Reserve officials chose to maintain the current interest rate at 5.3%, a level that has been unchanged since July 2023. The high interest rates are likely to continue boost the consumer financial sector, especially as inflation shows no immediate signs of cooling.
In the current high-interest rate environment, consumer financial services companies thrive by leveraging increased borrower payments to drive revenue growth. The sector's momentum is further fueled by a surge in digital banking adoption, enhanced credit accessibility, the broadening scope of financial literacy, and continuous technological advancements. Additionally, the global financial services market is set to grow at a CAGR of 7.7%, reaching $33.54 trillion in 2024.
Further, fintech is transforming the financial services sector through digital tools like online payments, AI, blockchain, and IoT. Moreover, generative AI is increasingly utilized for tasks such as risk management, fraud detection, and personalized services. The global market for generative AI in financial services is projected to reach $10.40 billion by 2023, expanding at a CAGR of 28.2%.
Given this backdrop, let’s delve into a comparative analysis of two Consumer Financial Services stocks Visa Inc. (V) and Nu Holdings Ltd. (NU) to understand why V is the better choice.
The Case for Visa Inc. Stock
Visa Inc. (V) is a global payment technology company with a market cap of $565.67 billion. It operates VisaNet, Visa Direct, Visa B2B Connect, Visa Cross-Border Solution, and Visa DPS. The company offers its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brand names. It serves merchants, financial institutions, and government entities.
V’s stock has gained 19.3% over the past year to close the last trading session at $276.46. It gained 6.2% year-to-date.
On May 7, 2024, V announced updates to its Visa Account Attack Intelligence (VAAI) offering, introducing the VAAI Score, a tool powered by generative AI to identify and score enumeration attacks. By using generative AI to analyze transaction patterns, the tool reduces fraud and operational losses while maintaining V's performance standards.
V’s trailing-12-month EBIT margin and EBITDA margin of 67.26% and 70.13% are 188.7% and 208.6% higher than the industry average of 23.30% and 22.72%.
In terms of forward EV/Sales, V is trading at 15.52x, 409.5% higher than the industry average of 3.04x. The stock’s forward EV/EBIT of 23.05x is 106.9% higher than the industry average of 11.14x.
V pays an annual dividend of $2.08, which yields 0.75% on the prevailing market price, higher than the four-year average of 0.67%. It has raised its dividend payouts at a CAGR of 16.1% over the past three years.
During the fiscal 2024 second quarter that ended on March 31, 2024, V’s net revenue increased 9.9% year-over-year to $8.78 billion. The company’s operating income grew marginally from the year-ago value to $5.35 billion. Its non-GAAP net income and non-GAAP EPS were $5.12 billion and $2.51, up 16.7% and 20.1% year-over-year, respectively.
Analysts expect V’s revenue and EPS for the third quarter (ending March 2024) to increase 11.9% and 16.2% year-over-year to $8.93 billion and $2.42, respectively. Furthermore, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
V’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Consumer Financial Services industry, V is ranked #6 among 43 stocks.
Click here to access additional ratings of V (Growth, Value, and Momentum).
The Case for Nu Holdings Ltd Stock
Headquartered in Sao Paulo, Brazil, Nu Holdings Ltd. (NU) is a digital financial services platform and technology company primarily in Brazil, Mexico, and Colombia. With a market cap of $57.14 billion, it provides Nu credit and debit cards, Ultraviolet credit and debit cards, and mobile payment solutions for NuAccount customers to make and receive transfers, pay bills, and make everyday purchases through their mobile phones.
The stock fell marginally intraday, closing its last trading session at $11.99.
On May 8, NU announced that it had surpassed 100 million customers in Brazil, Mexico, and Colombia, making it the first digital banking platform to reach this milestone outside of Asia.
NU’s trailing-12-month CAPEX/Sales of 0.55% is 72.5% lower than the industry average of 1.99%. Its trailing-12-month asset turnover ratio of 0.10x is 52.9% lower than the industry average of 0.22x.
In terms of forward P/B, V is trading at 6.93x, 551.7% higher than the industry average of 1.06x. The stock’s forward P/E of 32.87x is 202.1% higher than the industry average of 10.88x.
During the fiscal year ended December 31, 2023, NU's total revenue rose 67.2% year-over-year to $8.03 billion. It reported a profit for the year and EPS of $1.03 billion and $0.21, compared to a loss of $364.64 million and $0.08 in the prior year.
Street projects NU’s EPS and revenue to improve 154% and 56.5% year-over-year to $0.07 and $2.53 billion in the fiscal first quarter which ended March 2024.
NU’s mixed fundamentals are reflected in its POWR ratings. The stock has an overall rating of C, equating to Neutral in our proprietary rating system. The stock also has a C grade for Quality and Sentiment. In the same industry, it ranks #32.
In addition to the POWR Ratings just highlighted, you can see the NU rating for Growth, Value, Stability, and Momentum here.
Visa (V) or Nu (NU): Which is the Best Finacial Stock to Own?
The current high-interest rate environment is favorable for the consumer financial services sector. Moreover, with technological advancements and digitalization fueling industry growth, leading stocks V and NU stand to benefit.
However, V's strong financial and price performance and high profitability make it a preferred buy for now, while NU may offer a better entry point later.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Consumer Financial Services industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
V shares were trading at $276.27 per share on Wednesday morning, down $0.19 (-0.07%). Year-to-date, V has gained 6.31%, versus a 8.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
Is Visa (V) or Nu (NU) the Best Finacial Stock to Own? StockNews.com
