MasterCard Momentum Over Visa Seen Rising as Europe Recovers

MasterCard Inc., the second-biggest U.S. payments network, is poised to further outperform bigger rival Visa Inc. amid a 3 percent gain by the euro this year and signs that European consumer spending is picking up.

MasterCard, whose stock has outpaced Visa’s in 2013, could gain another 15 percent in two years as the sovereign-debt crisis eases, said Jason Kupferberg, an analyst at Jefferies Group LLC. Europe can boost MasterCard’s purchase volume, transactions and revenue for at least the next two quarters, Sterne Agee & Leach Inc.’s Greg Smith said.

MasterCard does more business in Europe than Visa, which generates about 2 percent of its revenue in the region. Should Europe’s economy and currency continue to strengthen at their current pace, Purchase, New York-based MasterCard is more likely to see a boost in profits and stock performance, both analysts said.

“Europe is a significant catalyst for MasterCard relative to Visa,” Smith, who has a neutral rating on the company, said yesterday in a telephone interview. “Assuming these general short trends continue, the underlying metrics are going to look a little better for MasterCard.”

MasterCard said yesterday in a statement that third-quarter net income rose 14 percent to $879 million, or $7.27 a share, as Europe credit- and debit-card spending climbed 14 percent. Visa, led by Chief Executive Officer Charlie Scharf, said on Oct. 30 that net income fell 28 percent as revenue missed analysts’ forecasts.

Europe’s Impact

MasterCard rose 1.6 percent to $728.68 at 10:28 a.m. in New York and Visa increased 1.7 percent to $200.01. MasterCard has gained 48 percent this year, outpacing the 32 percent advance of Foster City, California-based Visa.

Europe accounted for 28 percent of MasterCard purchases in the first nine months of this year, the company said. That could boost the shares, said Scott Valentin, an analyst at FBR Capital Markets in Arlington, Virginia, who rates the stock as outperform.

“Investors are looking at both companies and saying, ‘Europe is getting better, the U.S. is slowing down, MasterCard has more exposure to Europe, so therefore I’ll take MasterCard,’” Valentin said in a telephone interview.

The euro advanced 4 percent against the U.S. dollar in the quarter ended Sept. 30, before sliding the most in six months during yesterday’s trading. U.S. borrowers are raising twice as much debt in Europe this year as in 2012, amid an increase in confidence in the region’s economy.

Consumer Confidence

MasterCard’s gross dollar volume, which includes card purchases and cash transactions at automated teller machines, climbed 15 percent in Europe in the first nine months of 2013 from a year earlier, according to yesterday’s statement.

“European consumer confidence continued the recovery that has started in the second quarter and it’s now back up to the 2010 levels,” MasterCard Chief Executive Officer Ajay Banga, 53, said yesterday on a conference call. “Business sentiment has also improved over the quarter across major European markets like Germany, France, the U.K. and even Italy.”

Retail sales in the U.K. rose more in September than economists forecast, the Office for National Statistics said Oct. 17. Sales including fuel increased 0.6 percent from August, the ONS said. In Germany, retail sales rose 0.5 percent in August from July, according to a Sept. 30 report from the Federal Statistics Office in Wiesbaden.

Put Option

Visa Europe Ltd., a separate firm owned by banks, handles Visa’s European transactions and pays royalties to the U.S.- based company. The banks hold a put option requiring Visa Inc. to buy the overseas namesake for “several billion dollars or more” if exercised.

Kupferberg of Jefferies said it isn’t clear how Europe’s improvement affects a decision on whether to exercise the option. The banks might have considered exercising the put to raise capital amid the 2009 recession, while it’s possible to argue that the firms now don’t need the cash as much, he said.

“You can kind of spin it both ways,” Kupferberg said. “From a long-term perspective, the put will get exercised at some point. There is no expiration date on it.”

Visa Europe Ltd. didn’t respond to requests for comment. Paul Cohen, a Visa spokesman, declined to comment. On Visa’s conference call Oct. 30, Scharf said there was no news on the Visa Europe put option.