3 Payment Stocks Macquarie Thinks Will Win From Holiday Sales

• Shares of Mastercard Inc (NYSE: MA), Visa Inc (NYSE: V) and First Data Corp are up 11 percent, 17 percent and 4 percent, respectively, since September 29.
• Macquarie’s Kevin McVeigh maintained Outperform ratings on all three companies with price targets of $112 for MasterCard, $85 for Visa and $20 for First Data.
• The flow of gas savings into consumer spending is expected to have a positive impact on the performance of the three companies, McVeigh stated.

Analyst Kevin McVeigh mentioned that the MasterCard SpendingPulse data showed that retail sales excluding auto and gas rose 7.9 percent during the Black Friday to Christmas Eve shopping season. This compared with a 5.5 percent y/y increase last year.

The growth in retail sales was driven by a 20 percent y/y rise in ecommerce sales and double-digit growth in furniture sales, indicating a willingness to purchase big ticket items.

McVeigh believes that this data suggests definite signs of gas savings flowing into increased consumer spending during this holiday season. He wrote, “We believe this could be worth ~200 bps of revenue growth to MasterCard + Visa, but slightly less for First Data.”

According to MasterCard SpendingPulse, overall retail sales [excluding auto and gas] across all payment types improved 4.6 percent y/y from November through December. Including gas, sales growth was 2.7 percent y/y, indicating consumers are spending the lower fuel dividend.

The domestic Chinese processing market could be positive for both Visa and MasterCard, with the latter enjoying an early mover advantage because of its existing co-branding relationship with China UnionPay, McVeigh added.