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MasterCard and Visa’s Valuation and Earnings Growth

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May. 31 2019, Published 7:03 a.m. ET

Forward PE ratio

Currently, MasterCard (MA) is trading at a forward PE ratio of ~33x—higher than Visa’s (V) ratio of ~30x. MasterCard’s outperformance in recent years has likely contributed to its premium valuation. MasterCard’s average PE ratio over the last ten years is ~24.0x—slightly lower than Visa’s average PE ratio of ~24.4x.

As the above graph shows, MasterCard has been trading at a slight premium to Visa for around two years.

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Earnings growth

MasterCard’s last 12-month PE ratio is ~43x—higher than Visa’s PE ratio of ~35x. Visa’s five-year EPS growth rate is ~15.7%. In comparison, MasterCard’s five-year EPS growth rate is ~16.6%. So, MasterCard’s slight premium seems justified due to its higher EPS growth rate.

Based on the forward EV-to-EBITDA ratio, MasterCard looks to be trading at a premium. MasterCard’s forward EV-to-EBITDA multiple is ~25x compared to Visa’s ~23x. MasterCard’s marginally higher valuation might be sustained in the future if it manages to grow its earnings at a higher rate than Visa.

Increasing electronic payments over cash and check payments have benefited card companies over the years. Penetration in previously untapped markets has provided ongoing growth avenues for payment service providers.

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