Cash In on Wanderlust: Morgan Stanley Predicts Cross-Border Travel Fueld Comeback for Visa & Mastercard

  • Morgan Stanley analyst James Faucette highlights that banks have reported stable card spending volumes (a combined 7.9% YoY increase in total card spending). 
  • While this is below consensus for Visa Inc's V (Overweight rating and $288 price target) U.S. volume growth of 9.4% in 1Q (vs. 9.1% in 4Q), he believes the broader trend of stable growth and slight acceleration is in-line with expectations. 
  • Meanwhile, the analyst notes that consensus for Mastercard Inc MA (Overweight rating $438 price target) U.S. volume calls for a 2-point acceleration to 10% in 1Q.
  • When there are more significant variances between estimates for V and MA and actual U.S. card volumes, the analyst points out that the networks will usually employ cost controls to either beat or meet EPS estimates. 
  • Caution remains on the magnitude of potential slowing in March and April. 
  • Given improving travel trends, room for further recovery, a positive outlook on bookings, and a relatively limited impact on travel spending in a downturn vs. what most would expect, the analyst remains bullish on the cross-border travel story. 
  • With V and MA historically trading at a 10-14x premium to the S&P and now trading at 7-9x, the recent underperformance relative to the market offers a compelling valuation with macro risks fully priced in, supporting his Overweight call on the stocks in an April 20 note.
  • Price Action: V shares traded higher by 0.77% at $234.35 on the last check Thursday. MA shares traded higher by 0.51% at $374.72.
  • Photo via Wikimedia Commons
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