Mastercard vs. American Express: Which Credit Card Stock is a Better Buy?

Mastercard Incorporated (MA) provides transaction processing and other payment-related products and services. It facilitates the processing of payment transactions, including authorization, clearing, and settlement. In comparison, American Express Company (AXP) provides charge and credit payment card products and travel-related services worldwide. It operates through three segments: Global Consumer Services Group; Global Commercial Services; and Global Merchant; and Network Services.

The use of credit cards and other digital payment methods has increased significantly amid remote lifestyles. With rapid vaccination and recovering consumer confidence, spending on services and discretionary items has increased considerably. According to The Conference Board, the consumer confidence index increased in October, following declines over the previous three months. And according to the Commerce Department, overall consumer spending rose 0.6% in September.

The rapid adoption of digital prepaid card services should further drive the credit card market’s growth in the coming months. According to Research and Markets, the global credit card market is expected to grow at a 3% CAGR  to hit $103.06 billion in 2021.

AXP has gained 49.5% in price over the past nine months, while MA has returned 6.1%. Also, AXP’s 90.8% gains over the past year are significantly higher than MA’s 14.4% returns. AXP is also the clear winner with 43.7% gains versus MA’s 6% returns in terms of year-to-date performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On September 28, 2021, MA unveiled Mastercard Installments, an innovative Buy Now, Pay Later program that delivers greater choice at checkout, both in-store and online. This product could help the company meet the growing consumer demand for flexible, digital-first payment options.

Last month, AXP and Goldman Sachs Transaction Banking announced a collaboration to provide large corporate clients with a cloud-based payments solution that seamlessly supports multiple payment options and offers data and analytics in one integrated platform.

Recent Financial Results

MA’s net revenue increased 30% year-over-year to $5 billion for the third quarter, ended September 30, 2021. The company’s adjusted net income increased 46% year-over-year to $2.30 billion. Also, its adjusted EPS came in at $2.37, up 48% year-over-year.

AXP’s total revenue, net of interest expense, increased 25% year-over-year to $10.93 billion for the third quarter, ended September 30, 2021. The company’s net income increased 70% year-over-year to $1.83 billion. Also, its EPS came in at $2.27, up 75% year-over-year.

Past and Expected Financial Performance

MA’s revenue and EPS have grown at CAGRs of 7.2% and 18.1%, respectively, over the past three years. The company’s revenue is expected to increase 23% in the current year and 19.8% next year. Its EPS is expected to grow 27.8% in the current year and 28.6% next year. And its EPS is expected to grow at a 26.8% rate per annum over the next five years.

In comparison, AXP’s revenue and EPS have grown at CAGRs of 4.4% and 31.9%, respectively, over the past three years. Analysts expect the company’s revenue to increase 15.4% in the current year and 14.1% next year. Its EPS is expected to increase 153.6% in the current year and 0.9% next year, and its EPS is expected to grow at a 43.3% rate per annum over the next five years.

Profitability

AXP’s trailing-12-month revenue is 2.31 times what MA generates. However, MA is more profitable, with gross profit and net income margins of 100% and 45.5%, respectively, compared to AXP’s 71.1% and 18.9%.

Furthermore, MA’s ROE and ROA of 127.6% and 17.8%, respectively, are higher than AXP’s 33.6% and 4.2%.

Valuation

In terms of forward non-GAAP P/E, MA is currently trading at 40.74x, which is 122.4% higher than AXP’s 18.32x. Moreover, MA’s 1.62x forward non-GAAP PEG is 376.5% higher than AXP’s 0.34x.

So, AXP is relatively affordable here.

POWR Ratings

Both MA and AXP have an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

MA has a B grade for Growth, which is consistent with analysts’ expectations that its EPS will increase in the current and next quarter. In contrast, AXP has a C grade for Growth, which is in sync with analysts’ expectations that its EPS will decline in the current and next quarter.

Also, MA has a B grade for Stability. However, AXP has a C grade for Stability.

Of the 52 stocks in the Consumer Financial Services industry, MA is ranked #15 while AXP is ranked #16.

Beyond what I’ve stated above, we have also rated the stocks for Momentum, Sentiment, Value, and Quality. Click here to view all the MA ratings. Also, get all the AXP ratings here.

The Winner

Rapid technological innovations and the recovering economy are driving the growth of the credit services sector. So, the credit card space is expected to continue growing in the coming months, benefiting MA and AXP. However, we think MA is a better bet now because of its higher profitability and stronger growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Consumer Financial Services industry here.

MA shares were trading at $339.37 per share on Monday afternoon, up $3.85 (+1.15%). Year-to-date, MA has declined -4.46%, versus a 24.16% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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