Visa Now BMO's Top Pick In Fintech

BMO Capital Markets said in a note on Thursday Visa Inc V is its top pick in the fintech sector. While switching preference to Visa, the firm still maintains its Outperform rating on the shares of Mastercard Inc MA.

Secular Shift To E-Payments To Benefit Visa, MasterCard

Analyst Paulo Ribeiro expects Visa to be the key beneficiary of the global secular shift from cash and checks to electronic payments, with a highly defensible market position. This, according to the analyst, will help sustain long-term, double-digit earnings per share growth.

On MasterCard, Ribeiro said fundamental growth potential remains strong. Despite the challenging macroeconomic environment, the analyst believes MasterCard can deliver mid-teens earnings per share growth over the next few years. Just as Visa is, the company is also poised to benefit from the global secular shift to electronic payments. The analyst is of the view that MasterCard's balance sheet and cash generation support continued share buybacks and dividends.

Seeing A Better Setup For Visa In 2017

The firm expects Visa's bottom-line growth to accelerate due to the first full year of the Costco Wholesale Corporation COST and USAA portfolios, easier year-over-year forex comps, rebates/incentives, and cross border revenue growth and a swing to low-single-digit accretion in 2017 for the Visa Europe acquisition from low-single-digit earnings per share dilution in 2016.

VocaLink Buy To Broaden MasterCard's Engagement

BMO Capital Markets believes the VocaLink deal will help to broaden MasterCard's engagement with end consumers and financial institutions and to expand its payment ecosystem to include non-card transactions. The firm feels the strategic relevance of the acquisition resides mainly with innovations, namely real-time payments and mobile payments.

Valuation

BMO Capital Markets rates Visa an Outperform, with a $99 price target. The firm feels the recent share weakness offers a good entry point within its target price, indicating 24.5 percent upside over the next 12 months.

The firm rates MasterCard an Outperform too and has a $123 price target on the shares of the company.