Credit Card Company Weekly Notes – American Express, Visa And MasterCard

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The three major credit card companies – American Express (NYSE:AXP), Visa (NYSE:V) and MasterCard (NYSE:MA) – last week inked new partnerships that should aid in the expansion of their businesses and help create simplified solutions for their customers. On Tuesday September 9 2014, American Express, Visa and MasterCard announced a partnership with Apple (NYSE:AAPL) for the Apple Pay service. As part of the partnership, Apple Pay will support credit and debit cards on the payment networks of Visa, MasterCard and American Express, which represent nearly 83% of the total credit card purchase volume in the U.S. [1]

Below we take a brief look at how the previous week unfolded for the three companies:

American Express

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We expect the Apple Pay partnership to benefit AmEx as the iPhone captures the high end market in the smartphones category, fitting well into AmEx’s target customer base of high income and high spending customers.

AmEx also announced a partnership with Santander Mexico, which is a leading financial services company in Mexico. The partnership launched the Santander American Express credit card, which will be issued by Santander in Mexico. Santander will be responsible for marketing, billing, card authorization and customer relationships. The card, which will be linked to AmEx’s global merchant network, is being promoted for its strong reward points multiplier and redemption program. The new card focuses on rewarding customers for routine purchases and also carries add-on features like travel insurance and car rental insurance.  [2] The deal will open access for AmEx to nearly 11 million of Santander’s customers in the country.

AmEx’s stock traded slightly lower this week, and the current market price of around $88 is at more than 10% discount to our price estimate of $104.

The company earned $33 billion in revenues in 2013, and in the first half of 2014 revenues have been above $17.5 billion. We forecast the company to end the year with over $35 billion in revenues.

See our complete analysis of AmEx’s stock here

Visa

Last week, Visa introduced a token service to allow for secure payments through Apple Pay, whereby tokens are used to replace the 16 digit credit card number for a more secure transaction. [3]

We have a price estimate of $217 for Visa’s stock, which is almost in line with the current market price. Our valuation for Visa implies a market cap of $166 billion.

See our full analysis of Visa here

MasterCard

MasterCard Digital Enablement Service (MDES), a digital service introduced last year to facilitate banks to allow connected devices to conduct transactions, will be integrated with Apple Pay as part of the Apple Pay partnership. [4] In pursuit of increasing mobile payments, MasterCard also announced that contactless payment acceptance would become standard in Europe by 2020 for merchants accepting MasterCard and Maestro brands of cards. [5]

MasterCards’ stock was again flat last week, closing at around $76, which is at a discount of over 10% to our estimate of $85 for the company’s stock. We value the company at over $95 billion. We estimate an EPS of $3 for the current year, which is in line with the consensus EPS for the company.

See our full analysis of MasterCard here

Notes:
  1. Apple announces Apple Pay, Company Press Release []
  2. Santander and American Express Announce Partnership to Issue Credit Cards in Mexico, American Express Press Release []
  3. Visa launches innovative token service, Visa Press Release []
  4. MasterCard works with Apple to integrate with Apple Pay, MasterCard Press Release []
  5. MasterCard Fast Tracks Mobile Payment Acceptance in Europe Helping Europeans to Tap Everywhere by 2020, MasterCard Press Release []