MasterCard Gets Nod Over Visa From Guggenheim

NEW YORK (TheStreet) -- Guggenheim Securities analyst David Darst on Tuesday raised his earnings estimates for MasterCard (MA), while saying the payment processer "has the potential for a higher long-term growth rate given smaller size and market share" than its industry rival, Visa (V).

Both companies have outperformed the broad market year-to-date, and over the 52-week period through Monday, and Darst said that even though price-to-earnings multiples for both companies have expanded, "the stocks do not appear expensive as both continue to trade for ~0.9x the FY13E growth rate for each."

MasterCard's shares closed at $436.12 Monday, returning 17% year-to-date, with a 52-week total return of 59%.

In comparison, the S&P 500 Index (SPX.X) has returned 9% year-to-date, and 2% for the 52-week period, through Monday's close.

MasterCard last week reported a 25% increase in first-quarter earnings per share from a year earlier, to $5.36 a share, as net revenue rose 17% to $1.8 billion.

Darst on Monday raised his 2012 earnings estimate for MasterCard to $22.25 from $21.84, and his 2013 EPS estimate to $26.65 from $25.75," saying he expected "share repurchases to add 100-200bp to EPS growth."

The analyst said that MasterCard's shares have "less valuation risk" than Visa's shares, "regulatory and competitive positioning in the U.S," and that MasterCard's greater potential for growth, in light of its smaller market share, "warrants a higher valuation."

Darst also said that "prior to the Durbin amendment [which capped interchange fees charged by banks to merchants when processing debit card purchases] MasterCard functionality was 25% of the U.S. debit cards; now MasterCard is enabled on half including three of the largest portfolios."

MasterCard's shares trade for 17 times the consensus 2013 earnings estimate of $26.21, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $22.20.

Darst rates MasterCard a "Buy," and left his price target of $520 unchanged Monday, saying the target "reflects expectations for MA to trade for 20x FY13E EPS as we move into next year," and that his "earnings multiple approximates MA's forward growth rate, which is supported by MA's continued growth in both the international and U.S. markets coupled with a 50%-plus operating margin."

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