Is it better to buy right now?

In the midst of earnings season and the two largest payment processing companies; Visa (NYSE:V) and MasterCard (NYSE:MA) Both have reported quarterly results in recent weeks.

Both stocks are unique in that they are not only the world’s largest payment processors, but also form monopolies in their fields. These networks account for more than 80% of cards in circulation and approximately three-quarters of total credit/debit card purchases.

They also stand out because they are the only two people in the space with the same business model. They are simply payment processors, generating fees every time a credit card is used, while other competitors are also lenders and issuers with their own closed-loop networks.

Although both companies posted solid quarterly results and beat earnings estimates, investors reacted differently to the two stocks primarily based on guidance. Let’s take a look at what each one can expect in 2024 and which might be the better buy.

Mastercard’s partly bright outlook

Mastercard reported earnings on Jan. 31, and its stock price jumped about 3% to $457 per share, largely driven by its 2024 outlook. Most analysts covering the stock raised their price targets after the performance, including Barclays. Mastercard’s guidance increases from $49 to $549 per share. This represents a 20% increase over the next 12 months.

In 2024, Mastercard projects net revenue growth to be in the high double digits, which it assumes will be in the low teens. First quarter guidance calls for low double-digit year-over-year net revenue growth, which would be about 10% or 11%. These numbers were roughly in line with analysts’ expectations.

Visa, on the other hand, gave somewhat disappointing guidance, and its stock price fell about 2% after reporting earnings on January 25th. For the full fiscal year, Visa estimated high single-digit to low double-digit revenue growth. That’s roughly the same as 2023 net revenue growth. This range is slightly below Mastercard’s low-teens revenue growth guidance.

Visa expects mid-to-high single-digit revenue growth in its fiscal second quarter, which ends March 31. That’s lower than the 11% growth seen in the same quarter a year ago and falls short of Mastercard’s expected low double-digit revenue growth for the quarter.

Visa also expects low double-digit growth in operating expenses for the second quarter of fiscal year and throughout fiscal 2024. Mastercard expects operating expense growth in the mid-single digits for fiscal 2024 and minimal growth in the first quarter of the fiscal year ending March 31.

Both are great long-term performers.

As I wrote a few weeks ago, the market initially overreacted to Visa’s prospects, and the stock has bounced back nicely since then. It’s currently up about 3% since then and has returned about 6% year to date. Mastercard has outperformed Visa by about 8% this year.

In fact, these two stocks are outstanding long-term performers, benefiting from market power and relatively simple, low-overhead business models that generate huge margins and lots of cash.

Over the past 10 years, Mastercard has returned an average of 20.1% per year as of February 5, and Visa has returned an average of 17.8% per year, both easily outperforming the S&P 500. They tend to perform well in a variety of fields. But we certainly see better results when the economy is strong and consumer spending is increasing.

Which is a better buy?

I think both of these stocks are good buys right now and would be great additions to your long-term portfolio. But if I had to choose one as a better option, it would be Visa.

Visa’s estimated costs are higher, but seem more manageable as their operating margins are higher at 69% compared to Mastercard’s at 56%. Additionally, Visa reduced spending by 6% last quarter, while Mastercard increased spending by 21% last quarter.

Additionally, Visa is trading cheaper with a reasonable futures price-to-earnings ratio of 27, while Mastercard is slightly higher at 32.

So ultimately, Visa looks like a slightly better buy right now between these two quality stocks.