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have been hard hit in recent months along with the rest of the financial sector, but the stocks offer some significant upside even with a possibly long downturn ahead.

Investors are getting increasingly concerned about the resiliency of the two card network firms as U.S. troubles intensify and spread to other countries, even though two-thirds of the analysts who cover MasterCard and Visa call them buys or buy-equivaltents, according to



Visa, which reports third-quarter earnings after the market closes on Wednesday, is currently trading at about $49 a share, not much above the $44 a share it was when it went public at in March. The stock saw a high of $89.84 back in early May, but shares have been falling as the economy has worsened.

MasterCard shares are down nearly 60% from their all-time high in late May after management gave an optimistic outlook during an investor conference. The Purchase, N.Y.-based card network, which reports results on Nov. 3, went public in May 2006.

Analysts say that for the most part the concerns are overdone, as

consumer sentiment

reaches all-time lows.

"People are basically concerned that both of these names are going to see a bit of a slowdown if people stop spending, but the reality is the secular trends that are in the payments industry are really going to be positive forces over the next few years," says John Williams, an equity analyst at Macquarie Capital, who has an outperform rating on both stocks. "They may see slower growth, but the growth rates are still going to be significant

over the next few years."

Williams notes that Visa and MasterCard have not experienced a downturn -- let alone one as significant as the current crisis -- since they became public. But there are still avenues for growth, particularly internationally, he says.

To be sure, MasterCard and Visa face a number of issues that will slow the rate of purchase volume growth in the near term, including lower gas prices, slower U.S. consumer spending and a rising dollar, analysts say.

But "this is well known to investors," says Howard Shapiro, an analyst at Fox-Pitt, Kelton Cochran Caronia Waller, in a note. "

The key issue to be addressed will be management's assessment of its long-term growth prospects in light of current economic conditions," he writes.

Shapiro considers MasterCard a "core long-term holding" and rates the firm at outperform, the equivalent to a buy rating. He rates Visa in-line; the equivalent to a hold rating.

Analysts on average predict MasterCard will post third-quarter earnings of $2.25 a share on revenue of $1.27 billion and Visa to record profit of 56 cents a share on revenue of $1.68 billion, according to the latest estimates from Thomson Reuters.

Unlike Williams, Citigroup analyst Patrick Burton, is concerned about both companies' growth rates for revenue and purchase volume, specifically in credit cards. He maintains a hold rating on both firms.

"Deteriorating economic conditions, consumer confidence and tighter credit lending standards in the U.S. and abroad will drive increased headwinds to credit card volume growth over the next 12 to 18 months," Burton writes in an industry note earlier this month. "We believe this has already begun to play out in the U.S. as MasterCard's domestic credit card volumes

which were up only 0.7%

year-over-year in the second quarter, and we have become incrementally more bearish on the Eurozone and emerging markets."

In the U.S., large banks including




Bank of America


, among others, have been saying for several quarters now that rising delinquencies and charge-offs in their credit card portfolios has caused several to pull back on lending limits.

Last week,

American Express

reported profit fell 25% from the year-earlier period. The New York travel and card services company blamed weaker spending by card members and a large provision to protect against rising losses on wealthy customers and corporate clients who can't pay their bills.

MasterCard and Visa, on the other hand, have remained relatively unscathed amid the credit fallout. As payment networks, they receive a fee from partner banks, who issue the cards, to become a part of their network. They also receive fees for each transaction. They do not hold credit card loans on their books.

Still, Citi's Burton is worried. He notes that "it is only a matter of time" before some consumers "exhaust the available credit on their cards" as unemployment rises and homeowners are no longer able to get cash from the equity in their homes.

"Increasing delinquencies and charge-offs could lead to fewer new cards being issued and a cutback in credit limits creating additional headwinds to card volume growth going forward," Burton writes.

Consolidation in the financial sector also could impact the number of banks issuing cards, Burton says. The impact on card volumes is likely to be small, at least over the near term, but could become a problem, he writes.

For MasterCard, net revenue from its top five customers represented approximately 31% of total revenue as of 2007. For Visa, its five largest customers represent approximately 22% of total revenue, according to the Citi note.

In the past six weeks several large credit card issuers have been forced into acquisitions.

Washington Mutual

, which was taken over by

JPMorgan Chase


after being seized by regulators last month, was the sixth largest card issuer as of the end of 2007, according to the Nilson Report.

National City


, which agreed to a sale to

PNC Financial Services


on Friday, was the sixteenth largest credit card issuer, Nilson says.



, which is being acquired by

Wells Fargo


after a bidding war earlier this month with Citi, is the twentieth largest issuer, Nilson says.

The failed WaMu was one of MasterCard's largest issuers, but Macquarie's Williams says that shouldn't be too big a concern.

"As the big banks get bigger you're going to see that they're going to want to deal with both MasterCard and Visa," Williams says. "They're going to want to spread their exposure so that they have the ability to force Visa and MasterCard to compete a little bit for their business."

Of course, Visa and MasterCard are competing in an increasingly competitive landscape. Late Monday, rival

Discover Financial Services


announced it had reached a $2.75 billion settlement with the two companies over the right to issue third-party cards through banks.

The Riverwoods, Ill.-based Discover filed the suit in 2004 following the conclusion of an ongoing antitrust lawsuit initially filed by the Justice Department, accusing MasterCard and Visa of limiting competition in the U.S. credit card market.

American Express


had previously settled with the two larger card network firms in which they agreed to pay a combined more than $4 billion over the antitrust suit.

Visa will pay $1.9 billion, $1.7 billion of which had already been reserved for at the time the firm went public. MasterCard will pay $862.5 million of the settlement and plans to take an after-tax charge of $515.5 million for the third quarter, it said Monday.

Still, Morningstar's Michael Kon says the falling stock prices are possibly creating an opportunity. Visa must fall to $36 a share, while MasterCard needs to fall to $111 before he would consider buying either, he says.

"Even if they have one-two-three bad quarters, that doesn't change the fact that the long-term prospects are very compelling," Kon says.