Pacific Crest Initiates Coverage on Visa and Mastercard, Notes Innovation and Opportunity

In reports published Friday, Pacific Crest Securities analyst Josh Beck initiated a Sector Perform rating on

and an Outperform rating on

.

Although MasterCard has heavy international exposure, the analyst is cautious on near-term trends on regulatory climate shifts in the United States and Europe. Beck wrote, “we think investors may focus more on European regulatory outcomes and the magnitude of the U.S. Chase conversion in the near term. That said, if the global macroeconomy were to meaningful improve, we think MasterCard could disproportionately benefit from a higher international transaction mix (low-60s) and a heavier credit mix (mid-50s) that tends to be more economically sensitive.” Pacific Crest added that MasterCard has a solid track record innovating across partnerships, investments, products, security, and M&A. The company has “lagged” in the analyst's survey of the “most trusted online payment brand.” Beck reported that “MasterCard will need to both sustain innovation efficiency as commerce convergence raises demands and improve the brand image to drive long-term growth.”

Josh Beck is optimistic on Visa's name in the industry and its innovation efforts. The analyst commented, “Unmatched scale ($25 trillion of payments and a $20 billion in investments over the past five years), a trusted brand (the most trusted online payments provider in our survey), and a broad tech portfolio (V.Me, VMP, VMMS, Offers, Ready, etc.) place Visa in an elite position to enable the convergence of mobility and data-driven services across an omni-channel environment.” Pacific Crest reported that HCE, P2P encryption, and tokenization should improve the company's “security posture of the payments ecosystem.” Despite the negative impact from the Durbin Amendment, the analyst sees a benefit from the conversion of Chase's consumer project. Beck initiated a $241.00 price target on Visa.

Shares of MasterCard closed at $68.68 on Friday and is currently trading at $70.74, up 3 percent. Visa shares closed at $196.63 on Friday. The stock is currently up 1.32 percent at $199.23.