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Bank of America Securities downgraded Visa (NYSE:V) and Mastercard (NYSE:MA) to Neutral from Buy as analyst Jason Kupferberg sees limited upside potential to the two payment networks’ valuation multiples and estimates.
“Investor positioning remains crowded. Regulatory developments could limit multiple expansion and V/MA’s ability to take price,” the analyst wrote in a note to clients.
Mastercard (MA) stock fell 1.4% and Visa (V) dipped 1.2% in Wednesday premarket trading.
He pointed out that the companies’ efforts to tap value-added services (“VAS”) to augment revenue growth have resulted in “somewhat choppy” new flows growth and could face headwinds as the VAS businesses become larger and more penetrated.
In addition, the recent court rejection of the proposed merchant litigation settlement shows that the regulatory environment may have become more volatile.
Kupferberg still holds a favorable view of Visa’s (V) and Mastercard’s (MA) business model and competitive moat. The companies’ current valuation premium vs. the S&P 500 is below historical averages, he noted. “In the event of macro disruption, V/MA could benefit from investor rotation (which has hurt V/MA YTD),” the analyst said.
BofA’s Neutral rating on both stocks matches the SA Quant rating of Hold. That contrasts with the average SA Analyst rating of Buy for both. Meanwhile, the average Wall Street rating for Visa (V) is Buy and for Mastercard (MA) is Strong Buy.
Kupferberg’s top picks in payments remain Buy-rated Fidelity National Information Services (FIS), Global Payments (GPN), and Block (SQ).