What's Driving MasterCard, Visa To New All-Time Highs?

Shares of MasterCard Inc. MA and Visa Inc. V scaled new 52-week highs of $86.74 and $258.00, respectively, on Nov 25. Notably, these are also all-time highs for these Zacks Rank #3 (Hold) stocks, since MasterCard went public in Jun 2006 and Visa in Mar 2008.

Meanwhile, shares of Visa jumped 17.3% since the beginning of 2014 and consistently rose 8.9% since the release of fiscal fourth-quarter and full-year 2014 earnings results on Oct 29. While about 3.24 million shares exchanged hands in the latest trading session, average volume of shares traded over the last three months stands at approximately 2,931.2K. Yesterday's closing price represents a strong one-year return of 27.3%, against 14.6% clocked by the S&P 500 index.

On the other hand, MasterCard shares appreciated 3.9% since its third-quarter 2014 earnings release on Oct 30. With 5.62 million traded in the latest sessions, average volume of shares traded over the last three months was approximately 5,043.4K. Yesterday's closing price also showcased a modest one-year return of 14.4%, almost on par with the S&P 500 index.

Factors at Play

MasterCard and Visa, the behemoths in the electronic payment processing industry, are riding on a momentum due to a number of factors that are driving long-term growth. While both the companies face similar challenges from the stringent regulations across the chief operational regions of the U.K., Russia, Canada and the U.S., the proposed new visa rules within China and the U.S. are expected to bring more leniency and boost business and tourism. These also underscore the prospects for expansion of these card giants in the underpenetrated market of China. Improving industry dynamics also signal better growth ahead.

Secondly, the aggressive initiatives taken within the digital payments space, through technology upgrade and strategic alliances, are beginning to show positive results. This is evident from the improved cross-border fees and transaction volumes witnessed by the both the companies over the past quarters. The improvement is significant given the fact that about three-fifth of these companies' revenues are generated from international operations. Notably, despite difficult comps and litigation settlements, Visa outperformed its fiscal 2014 earnings targets, while MasterCard posted another solid quarter this year.

Additionally, MasterCard has delivered positive earnings surprises in all three quarters of 2014, with an impressive average beat of 6.5%. Visa also posted four straight quarters of earnings beat in its fiscal 2014, average being 2.4%.

We believe the rising consumer confidence in digital payments, along with efforts taken by the card giants to strengthen the security and accessibility of electronic payments will help to mitigate risks from regulations. A strong business model, cash flows and capital deployment as well as a risk-averse leverage will continue to boost investor sentiment and drive these stocks higher in the future.

Investors interested in the electronic payment processing sector could consider players like Euronet Worldwide Inc. EEFT and Global Payments Inc. GPN, both of which also hit new 52-week highs of $57.98 and $85.77 in the last trading session.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
MASTERCARD INC MA: Free Stock Analysis Report
 
VISA INC-A V: Free Stock Analysis Report
 
GLOBAL PAYMENTS GPN: Free Stock Analysis Report
 
EURONET WORLDWD EEFT: Free Stock Analysis Report
 
To read this article on Zacks.com click here.