Credit Card Heavyweight Fight

By Chad Henage - February 7, 2012 | Tickers: AXP, DFS, MA, V | 0 Comments

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There are basically 4 heavyweights when it comes to credit cards. They are: Visa (NYSE: V), MasterCard (NYSE: MA), American Express (NYSE: AXP) and Discover (NYSE: DFS). With the move away from cash and checks and towards plastic, these companies should stand to benefit tremendously. You would think that each of these stocks would sell at a premium because of brand awareness alone, but they do not. Let's see which of these heavyweights might deserve a spot in your portfolio. We'll rank them one through four in each category to determine our winner. The lowest score wins!

Previous & Future Growth Rates

MasterCard wins this category with Visa close behind. There are two issues I see. First, American Express is expected to increase their past growth by 75% to meet expectations for future growth. Second, Discover's growth is seen slowing by 39% to match their future growth. These two figures could misrepresent their actual growth opportunities. However, Amex and Discover finish a clear 3^rd and 4^th in both categories even if analysts are off on their estimates.

Dividends & Valuation 

Discover wins this category by offering the highest yield and the best relative value. In a strange twist, MasterCard has the second best relative value, but its yield is the lowest. Last, let's look at relative strength of each company's balance sheet. 

There is a huge difference here. Visa and MasterCard are financially very strong with over 60% and 70% of their total assets in equity. American Express and Discover are also strong, but in a different class with about 12% of their assets in equity.

We have looked at a lot of numbers and here is the final total (lowest number is the winner).

Visa = 11

MasterCard = 10

American Express = 16

Discover = 12

MasterCard wins this heavyweight battle. The company offers the highest previous and future growth rates. MasterCard also has the second best valuation, with the second best balance sheet. While the company's dividend isn't anything to write home about that is a small factor. All 3 of the remaining competitors look attractively valued. Each company is expected to grow over 10% going forward, all pay dividends, sell near or below their growth rates, and have strong balance sheets. I'm betting with the winner and placing my thumbs-up CAPSCall on MasterCard today. Do your own research and see which company you might choose. From what we've seen it seems like profits are in the cards.

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