David BaskinMastercard Inc.MAPARTIAL SELLMay 13, 2008

It reports Wednesday. More like Visa than AmEx and could report better results than Visa, because MA puts up consistently strong reports. Likes it.

Grown revenue by 10% annualized last 5 years. Second-largest digital payments company after Visa. Over 210 countries, 150 currencies. Solid consumer spending that's growing. Travel demand, higher cross-border volumes. 

Extensive global network. Very strong brand recognition, great technology gives it strong competitive advantages to protect market share. Industry has plenty of runway for growth. Tollbooth. Share buybacks, raised dividend 16%. Earnings growth looks to be 17% or more for several years. Reasonable price. Great core name. Yield is 0.6%.

Governments could take action on being a duopoly along with Visa but this would have to be a unified effort all over the world. It just got permission to operate in China which has 800 million credit cards. American Express was the first to do this and Visa is not there yet.

It traditionally trades at high value but grows in the double digit range on both top and bottom lines. It is a basically a duopoly with Visa.

Visa has wonderful business economics, largest payment network, quite embedded. Both Visa and MA have less operating risk than, for example, PYPL.

It has $256 billion in revenue. It has an extensive global network in 210 countries. It started a $9 billion share buyback last year. Also it expects 18% EPS growth per year over the next few years. This is due to high post pandemic travel, revenge spending, and growing global and emerging market spending.    Buy 41, Hold 6, Sell 0

Prefers Visa, because it trades at a slightly lower PE, growth rates are as good as MA's and it's the biggest credit card company by far. Also, Visa is concentrated in the debit market, which is where fintech is transitioning to.

Markets like China are almost cashless. Visa or MA are the two places to be. Growth of digital payments has slowed, so you might get a better entry point.

Owns shares for past 5 years.
Move to cashless society good for business.
Recovery in global travel helping with revenue.
Good business for long term shareholders.
Expecting double digit earnings growth.
Current share price not cheap.
Excellent management team.

He owns Visa. Both trading at 52-week highs today. Wide moat, huge pricing power. Lots to like still. The type of business you can hold for multi-decades. Such a large network effect, they're in good shape for the long term.

Excellent business model.
Under regulatory watch, but not concerned.
Very robust network effects. 
Strong security to protect customers from cyber attack.
Excellent profits and free cash flow.
Investing in new lines of business.

The valuation of Visa and Mastercard has been elevated, but the growth has supported it. AmEx has the cheaper valuation; they benefit from international travel. He owns a little Visa. The future of payments processing? It's Apple Pay, which kids use through their phones. The sector has a lot of moving parts and competition, so it's hard to say where it's going.

It's a tech stock. Next to Visa, they're the king of transaction processing. They just bought Africa's largest cell network. Interesting that a credit card company is buying a cell company. MA is a money machine. They just beat top and bottom and extending guidance. It's his 4th-largest holding. You can buy it partially now and watch for fall volatility to add more.

Fundamentally, it's worthwhile to understand that Visa is the granddaddy of the card business. Visa does more transactions that all competitors combined, 60% of business is international, more of a footprint in debit cards. Prefers Visa at a few multiple points cheaper, with potential of high $8 or low $9 EPS for next year.

He doesn't dislike MA, very similar structures and business plans. It's done well.

 MA has shown its ability to compete, and also adapt, over decades. The cash-to-card trend is not likely to go away. Travel is coming back. Lower costs can still improve margins and AI could help its data mining. There are positives to offset the negatives noted. Certainly from an earnings standpoint, based on consensus estimates, no slowdown in growth is expected for three years at least. We think if investors were concerned it would lose it 'premium' multiple (31X). But it is not a company we would bet against, and we would be comfortable buying/owning it today.
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