4 Attractive Overseas Payments Companies

Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As more and more economies expand, we have a growing overseas middle class that remains under-banked. Most are still in a cash-based economy, but that is changing. Bank accounts are being opened, credit cards applied for, and money is being sent around the globe. As this trend continues, I have identified four stocks that will benefit and have upside potential. 

The Western Union Company (NYSE: WU) - Dividend Yield: 3.40%

The company that I think has the most potential to benefit from this growing trend is Western Union. Western Union is everywhere in emerging economies, particularly in the fast-growing Southeast Asia and Latin America regions. It remains the quickest and fastest way to send money globally. As these countries grow, its citizens are becoming more mobile and that creates the need for money to be sent quickly and safely. Western Union has over 510,000 agent locations in 200 countries. No other company is able to offer the same services as Western Union on such a scale.

Western Union has a current market cap of $8.25 billion at $14.51 a share. The forward P/E is 9.13 and the PEG ratio is 1, making it a solid dividend yielding stock on sale (check out all five). Operating margins come in at 24.78%, and the profit margin is 18.11%. On the balance sheet there's $1.79 billion in cash and $4.03 billion in debt.

The stock is down over 19% in the past year, but pays investors an annual dividend of $0.50 per share for a yield of 3.4%. The dividend payout ratio is only 25%, so there's room to grow the dividend. Of the analysts that follow the stock, four have it rated as a Strong Buy, two a Buy, 18 a Hold, and four an Underperform. Price targets on the stock range from $12 to $25 with $15 being the median target. 
 
I'm also encouraged by the positive hedge fund interest in the stock. Going into 2013 there were 33 hedge funds long the stock, an 18% increase from the third quarter. The top hedge fund owners by shares include Chieftain Capital, with a $207 million position (16.4% of its 13F portfolio) and billionaire Leon Cooperman's Omega Advisors (check out Cooperman's small cap picks).

Visa Inc. (NYSE: V) - Dividend Yield: 0.80%

Visa is a global payments leader. The company's payment platforms include credit, debit, prepaid, and cash access programs, along with digital, mobile, and e-commerce payments for individuals, businesses, and governments. Brands include Visa, Visa Electron, Interlink, and PLUS.

Visa has a market cap of $106.76 billion at around $161 a share. The forward P/E is 18.99 and the PEG ratio is 1.23. Operating margins come in at 59.93% and profit margins are 22.46%. On the balance sheet there's $2.78 billion in cash and no debt.

The stock is up 33.39% in the past year. The company pays an annual dividend of $1.32 for a yield of 0.80%. The dividend payout ratio is 39%. Of the analysts that follow the stock, 10 have it rated as a Strong Buy, 14 a Buy, and nine a Hold. Price targets for the stock range from $135 to $196 with $177 being the median target.
 
Although hedge fund sentiment was neither positive nor negative for the fourth quarter of 2012, there were still 74 hedge funds long Visa going into 2013. This includes its top hedge fund owner by shares, SPO Advisory Corp, with a $752 million position that makes up 11.8% of its total 13F portfolio (check out how other funds are trading Visa).

Mastercard (NYSE: MA) - Dividend Yield: 0.50%

Mastercard provides transaction processing and other related payment processing services. Brands include MasterCard, Maestro, and Cirrus. Mastercard has a market cap of $63.96 billion at $521 per share. The forward P/E is 17.25 and the PEG ratio is 1.17. Operating margins are 53.54% and the overall profit margin is 37.33%. Return on equity is an impressive 43.07%.

On the balance sheet there's $5.04 billion in cash and only $51 million in debt. The stock is up 18.29% over the past year. The company pays an annual dividend of $2.40 per share for a yield of 0.50%. The payout ratio is a meager 6%, so there's plenty of room to increase the dividend. Of the analysts that follow the stock, 11 have it rated as a Strong Buy, 14 a Buy, and eight a Hold. The price targets for the stock range from $425 to $630 with $600 being the median target. 

American Express (NYSE: AXP) - Dividend Yield: 1.20%

American Express provides charge and credit payment card products and travel-related services worldwide. The company serves consumers, small businesses, mid-size corporations, large corporations, and governments. It has a strong marketing team that reaches its customers through direct mail, online applications, in-house and third-party sales forces, and direct response advertising.

The stock trades at a forward P/E of 12.29 and the PEG ratio is 1.19. Operating margins come in at 23.35%, and the profit margin is 15.15%. Return on equity is 23.79%. The company has $22.84 billion in cash on the balance sheet compared to $62.82 billion in debt. The current dividend is $0.80 per share for a yield of 1.20%. The dividend payout ratio is only 20%. 

The stock is up 13.21% over the past year and of the analysts that follow the stock, six have it rated as a Strong Buy, six a Buy, 12 a Hold, and three an Underperform. The price targets for the stock range from $53 to $80 with $67 being the median target.  
 
The conviction for American Express from big name hedge funds is also robust, with six hedge funds having over 5% of their public equity portfolios invested in the credit card company. This includes billionaire Warren Buffett, who had 11.57% of Berkshire's public equity monies invested in American Express as of the end of 2012 (see Buffett's high upside picks). 

Bottom line 

All four companies will benefit from overseas growth as more consumers go towards electronic and mobile payments. Cash will be used less and less in transactions. Of the four, the top two are Western Union and Mastercard. Western Union offers the most upside potential because of its low valuation and market cap. Mastercard is just an amazing cash generator and well-run company with great margins and a pristine balance sheet. Either way, I don't think investors can go wrong with any of these four companies.


Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends American Express, Visa, and Western Union. The Motley Fool owns shares of MasterCard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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