BofA sees a potentially more volatile regulatory landscape as well as limited valuation upside
Shares of Visa Inc. and Mastercard Inc. mostly draw buy ratings from Wall Street analysts.
But BofA Global Research’s Jason Kupferberg broke from the pack on Wednesday as he downgraded both payment-technology stocks to neutral.
He noted an “arguably … more volatile and unpredictable” regulatory landscape in the wake of a judge’s “unexpected” decision to reject the companies’ landmark deal in a long-running merchant suit.
“Historically, we (and the investment community in general, based on investors with whom we’ve spoken) have largely treated [Visa and Mastercard] regulatory developments as no more than modest headline risk,” he wrote. But Visa and Mastercard now must contend with dynamics such as revising or going to trial over the merchant agreement and fending off the proposed Credit Card Competition Act with this new, unpredictable backdrop.
Additionally, regulatory developments could make it harder for Visa (V) and Mastercard (MA) to recognize additional pricing benefits, Kupferberg noted.
Mastercard’s stock is down 2.5% in morning trading Wednesday and on track for its largest single-day percentage decline since it fell 3.5% on Feb. 20, according to Dow Jones Market Data. Visa’s stock is off 1.5%.
Kupferberg also wrote that it could be “challenging” for the two companies to sustain revenue growth upwards of 10%, even though they’ve made efforts to expand into value-added services and new payment flows. Growth in those two areas “has been somewhat choppy recently and could face headwinds as these businesses grow larger and become more penetrated,” he said.
He now has “modestly less confidence” in the prospect of 10%-plus net revenue growth for the two companies over the next five years. The companies are still “fairly reliable compounders, but potentially at a slower rate than pre-pandemic,” he added.
Kupferberg flagged “limited upside potential to the valuation multiple and estimates,” while noting “crowded” investor positioning in both names. He also said the downgrades aren’t a call on the upcoming results, as estimates for the June quarter look “achievable amid generally stable overall consumer spending.”
Of the 42 analysts tracked by FactSet who cover Visa shares, 32 have buy ratings and 10 have neutral ratings. For Mastercard, there are 39 covering analysts, with 34 at buy and five at neutral.