NEW YORK, Aug 8 (Reuters) - Visa Inc shares are cheap and would be a 'reasonable' long-term bet, thanks to an investor overreaction to the new financial regulatory reform law, Barron's business weekly said on Sunday.
Rival MasterCard Inc could be an even safer bet than Visa, due to its lower market share in processing debit transactions, the newspaper said in a separate article on Sunday.
Both Visa and MasterCard process debit and credit card transactions for banks. A provision of the sweeping Dodd-Frank law will restrict the processing fees that merchants pay banks every time a customer pays for a product or a service with a debit card.
Investors fear that Visa and MasterCard could see their growth stifled by the law, especially if banks react by raising other card-related fees, Barron's said. The stock prices of both card companies have fallen about 20 percent since that provision surfaced in May.
But Barron's said that investors have overlooked the companies' core strengths. Both generate growth from a 'powerful' long-term trend as consumers shift from paying with cash to paying with plastic. Investors are also ignoring the probability that earnings will rise in the next year, before the law is implemented, the weekly financial paper said.
Visa, the world's largest credit and debit card processing network, is growing rapidly abroad and developing emerging technologies, including mobile payments and e-commerce, Barron's said.
'This is as cheap as you are going to get Visa shares. They have been terribly discounted,' Goldman Sachs analyst Julio Quinteros Jr. told Barron's, predicting that the price of Visa shares could rise almost 30 percent over the next 12 months.
Meanwhile, MasterCard might even reap benefits from the law, Barron's said.
U.S. regulators must implement a provision of the law requiring more competition in certain types of debit card processing, which could give MasterCard an opportunity to take market share from Visa.
'MasterCard has a pristine balance sheet, great free cash flow and a strong fundamental business, and it is under good management,' C.T. Fitzpatrick, a former portfolio manager at LongLeaf Partners, told Barron's.
MasterCard represents 6.6 percent, or the largest holding, of his new Vulcan Value Partners fund, according to the paper.
MasterCard is 'an excellent long-term bet,' Fitzpatrick told Barron's.
On Friday, Visa's stock closed at $72.14, up 64 cents, or less than 1 percent, while MasterCard shares ended at $207.42, up $5.79, or almost 3 percent.
(Reporting by Maria Aspan; Editing by Jan Paschal) Keywords: CREDITCARDS/SHARES (maria.aspan@thomsonreuters.com; +1 646 223 6394) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Rival MasterCard Inc could be an even safer bet than Visa, due to its lower market share in processing debit transactions, the newspaper said in a separate article on Sunday.
Both Visa and MasterCard process debit and credit card transactions for banks. A provision of the sweeping Dodd-Frank law will restrict the processing fees that merchants pay banks every time a customer pays for a product or a service with a debit card.
Investors fear that Visa and MasterCard could see their growth stifled by the law, especially if banks react by raising other card-related fees, Barron's said. The stock prices of both card companies have fallen about 20 percent since that provision surfaced in May.
But Barron's said that investors have overlooked the companies' core strengths. Both generate growth from a 'powerful' long-term trend as consumers shift from paying with cash to paying with plastic. Investors are also ignoring the probability that earnings will rise in the next year, before the law is implemented, the weekly financial paper said.
Visa, the world's largest credit and debit card processing network, is growing rapidly abroad and developing emerging technologies, including mobile payments and e-commerce, Barron's said.
'This is as cheap as you are going to get Visa shares. They have been terribly discounted,' Goldman Sachs analyst Julio Quinteros Jr. told Barron's, predicting that the price of Visa shares could rise almost 30 percent over the next 12 months.
Meanwhile, MasterCard might even reap benefits from the law, Barron's said.
U.S. regulators must implement a provision of the law requiring more competition in certain types of debit card processing, which could give MasterCard an opportunity to take market share from Visa.
'MasterCard has a pristine balance sheet, great free cash flow and a strong fundamental business, and it is under good management,' C.T. Fitzpatrick, a former portfolio manager at LongLeaf Partners, told Barron's.
MasterCard represents 6.6 percent, or the largest holding, of his new Vulcan Value Partners fund, according to the paper.
MasterCard is 'an excellent long-term bet,' Fitzpatrick told Barron's.
On Friday, Visa's stock closed at $72.14, up 64 cents, or less than 1 percent, while MasterCard shares ended at $207.42, up $5.79, or almost 3 percent.
(Reporting by Maria Aspan; Editing by Jan Paschal) Keywords: CREDITCARDS/SHARES (maria.aspan@thomsonreuters.com; +1 646 223 6394) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.