Morgan Stanley Just Chose Visa Over MasterCard: Here's Why

In a recent report, Morgan Stanley analysts took an in-depth look at credit card giants Visa Inc V and MasterCard Inc MA ahead of their earnings releases later this week.

Here’s what analysts had to say about the two companies.

Visa

Analysts are predicting an 11 percent year-over-year growth in U.S. payment volume in 4Q14, up slightly from the 9.8 percent growth reported in the previous quarter.

The report lists Visa’s intra-quarter updates, data from issuers and acquirers, and the conversion of MasterCard’s Chase consumer credit portfolio as three reasons for the expected uptick in growth.

Despite foreign exchange headwinds, analysts are predicting 5.5 percent net revenue growth for the quarter. They see operating margins of 66 percent for the quarter and earnings per share (EPS) of $2.49, in line with consensus.

Analysts expect the company to maintain the guidance they gave last quarter.

MasterCard

Analysts see a 4.5 percent payment volume growth in 4Q14, down from 8.2 percent in the previous quarter. While data suggests that underlying trends remain strong, the Chase consumer credit portfolio deconversion will hamper MasterCard’s most recent quarter.

Analysts expect 9.8 percent revenue growth on 45.9 percent operating margins once foreign exchange headwinds are factored in.

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Their EPS estimate of $0.62 for the quarter is $0.06 below consensus.

Top Pick

Overall, analysts are cautious about the quarter for these two companies. Morgan Stanley maintains its Overweight rating on both stocks, but Visa is the top pick between the two.

“Once expectations are reset for the recent FX moves, we see more upside potential to V’s 2015 expectations than MA due to benefits from the Chase conversion, pricing actions that go into effect in 2H, as well as tailwinds from increased FX volatility that is not factored into management’s current guidance," they conclude.