Visa stock snaps record losing streak, but economic concerns linger

Both stocks looked on pace to extend their losing streaks during much of Wednesday morning’s activities but started showing lasting gains around midday.

Visa and Mastercard have each held up marginally better than the broader market so far this year, with Visa shares down 17.3% and Mastercard shares off 19.2% to date in 2022, while the S&P 500
SPX,
+1.97%
has lost 22.0%. The names have been seen as more insulated from inflation-related fears; executives from both companies indicated earlier in the year that their businesses historically had seen some benefits from inflation.

Read: ‘Consumer spending has been remarkably stable,’ Visa CFO says

The shares have lagged behind the broader market over a more recent span, however, with Visa down 11.7% over the past month and Mastercard down 12.6%, while the S&P 500 has declined 8.4%. Fellow payments giant American Express Co.
AXP,
+2.23%
has seen its stock fall 10.7% over that period.

Recent pressures on the big payments companies could reflect growing concerns about foreign-exchange headwinds, according to MoffettNathanson analyst Lisa Ellis, who told MarketWatch that both Visa and Mastercard have more international exposure than the average U.S. company, with Mastercard’s exposure a bit greater than Visa’s.

For that reason, she said, “the stronger dollar creates significant revenues and EPS [earnings per share] translation headwinds for the networks, which triggers negative revisions to nominal reported revenue and EPS, even if the underlying constant currency figures remain strong.”

Visa and Mastercard each saw about 4 to 5 percentage points of negative headwinds related to foreign-exchange in their most recently reported quarters, and “as the dollar strengthens, so does that headwind,” Ellis said.

Both Visa and Mastercard have benefited from international travel that has resurged from pandemic lows — a trend that’s helped their businesses, as it leads to lucrative cross-border revenues. But the strong dollar ultimately could weigh on cross-border travel, Ellis said, by discouraging overseas tourists from traveling to the U.S.

Mizuho analyst Ryan Coyne agreed that changing outlooks on cross-border trends could be at play. Visa and Mastercard shares became “crowded post-COVID as investors were excited about the return of high-yielding cross-border travel volumes,” he told MarketWatch. However, that trade “may have played out, and thus we’re beginning to see a reversal.”

He noted that almost 30% of Mastercard’s normalized payment volumes for calendar 2019, the last full year before the pandemic, came from Europe, compared with about 20% for Visa. Investors could have growing concerns about the exposure to the U.K. and Europe in general, he said.

Additionally, Visa’s fiscal year ends in September, meaning that its management team is expected to deliver a forecast for fiscal 2023 in conjunction with the company’s next earnings report in a month or so.

“Given the weakening macro, investors may perceive additional risk here and thus favor [Mastercard to Visa] on a relative basis,” Coyne said.

MoffettNathanson’s Ellis nonetheless remained upbeat about the prospects for both Visa and Mastercard.

“I view any pullback of this magnitude in [Visa and Mastercard] stocks as an attractive long-term entry point,” she said, noting that the “core” thesis of roughly 11% volume growth, 12% to 13% revenue growth and 16% to 17% earnings growth “is as strong as ever.”

Additionally, “the businesses are inflation-hedged and with their strong near-term cash flows aren’t sensitive to rate hikes. … So aside from the foreign-exchange-related dynamics, which will weigh on the stocks in the near term,  they are a great place to be.”