Warren Buffett, the renowned “Oracle of Omaha” and CEO of Berkshire Hathaway (BRK.B), is celebrated as one of history's greatest investors. His strategic stock market investments, favoring companies with consistent share buybacks and generous dividends, alongside his signature value investing approach, have led to immense wealth accumulation. This track record of success should instill confidence in the stocks he invests in.
While headlines today are centered around his newly revealed investment in insurance giant Chubb (CB), Buffett's talent for spotting winners is also evident in his selection of two leading global digital payment tech stocks: Visa, Inc. (V) and Mastercard Incorporated (MA). Regulatory filings show Berkshire holds about $2.3 billion in Visa and $1.9 billion in Mastercard, with both stocks in the portfolio since 2011, indicating Buffett's long-term investment strategy.
Sustained high interest rates spell opportunity in the payment tech domain, as they could amplify Visa and Mastercard's profit margins. Moreover, Piper Sandler just initiated “Overweight” ratings on these stocks, citing their scale, unique networks, fintech partnerships, and sustained growth in digital payments as attractive investment attributes.
With Wall Street overwhelmingly bullish on these two Warren Buffett stocks, let's take a closer look at the long-term investment potential.
Warren Buffett Stock #1: Visa
Incorporated in 1958, San Francisco-based Visa, Inc. (V) is a global payment technology company operating internationally. It forms a global nexus, linking consumers, businesses, financial entities, and governments in over 200 countries and territories. Annually, it powers a staggering 200 billion transactions, boasting a vast network of 80 million merchants worldwide. It offers various card products, tap-to-pay services, and Visa Direct for fund delivery. Additionally, it provides acceptance solutions, risk management, and consulting services under multiple brand names.
Valued at $514.8 billion by market cap, shares of Visa have gained 21.4% over the past 52 weeks and 7.5% on a YTD basis.
On April 23, Visa’s board of directors declared a dividend of $0.52 per share of common stock, payable to its shareholders on June 3. The company’s annualized dividend of $2.08 translates to a 0.74% dividend yield. Plus, Visa maintains a payout ratio of 18.5%, affording ample room for growth initiatives and potential future dividend boosts.
In terms of valuation, Visa trades at 28.12 times forward earnings and 15.56 times sales, lower than its own five-year averages of 31.71x and 17.63x, respectively.
Shares of Visa soared after it reported fiscal Q2 earnings results on April 23, sailing past Wall Street’s estimates on both the top and bottom lines. With consumers undeterred by economic concerns, spending surged on various fronts, from travel to dining out. While Visa's net revenue climbed 10% annually to $8.8 billion, outperforming estimates by 1.7%, its adjusted EPS soared 20.1% year over year to $2.51, surpassing forecasts by 3.3%. Its share repurchases and dividends for the quarter amounted to $3.8 billion.
For the current quarter, Visa forecasts low double-digit net revenue and a high end of low double-digit EPS growth. For fiscal 2024, the company anticipates low double-digit revenue growth and low-teens EPS growth.
Analysts tracking Visa predict its EPS to grow to $9.94 in fiscal 2024, up 13.3% annually, and then another 11.5% to $11.08 in fiscal 2025.
In addition to initiating an “Overweight” rating, Piper Sandler set a $322 price target on Visa, which implies an upside potential of 15.1%. The analysts see Visa achieving top-line/bottom-line margins of 11% or 12%.
Visa has a consensus “Strong Buy” rating overall. Of the 32 analysts covering the stock, 24 advise a “Strong Buy,” four suggest “Moderate Buy,” and the remaining four give a “Hold” rating.
The average analyst price target of $307.96 indicates 10% upside potential from current price levels. However, the Street-high price target of $335 suggests that the stock could rally as much as 19.7%.
Warren Buffett Stock #2: Mastercard
With a market cap of $425.8 billion, Mastercard Incorporated (MA), like Visa, has a rich legacy, providing seamless and secure global payment solutions spanning over 210 countries and territories. Founded in 1966, the New York-based titan offers diverse payment products and services under renowned names like MasterCard, Maestro, and Cirrus.
Shares of Mastercard surged 21.3% over the past 52 weeks and 16.1% over the past six months.
On May 9, the company paid its shareholders a dividend of $0.66 per share. The company’s annualized dividend of $2.64 translates to a 0.58% dividend yield. The company maintains a low dividend payout ratio of 18.5%, which suggests that Mastercard can sustain and potentially increase its dividend payments in the future.
Priced at 32.15 times forward earnings and 16.82 times sales, the fintech stock trades at a discount to its own five-year averages of 37.74x and 18.34x, respectively.
On May 1, Mastercard reported better-than-expected Q1 earnings results, fueled by robust consumer spending, new deals across regions, and a solid 18% annual growth in cross-border volume. Its revenue surged 10% annually to $6.3 billion, in line with estimates, while adjusted profit rose 18.2% year over year to $3.31 per share, beating the consensus by 2.8%. In Q1, Mastercard repurchased 4.4 million shares at $2 billion and paid $616 million in dividends.
Despite the quarterly beat, MA shares dipped following a 2024 guidance cut. The payments company now expects low-end, low-double-digit growth in net revenue, a shift from its earlier outlook of high-end, low-double-digit expansion.
Analysts tracking Mastercard predict its EPS to grow to $14.24 in fiscal 2024, up 16.2% annually, and then notch another 15.5% increase to $16.44 in fiscal 2025.
Piper Sandler assigned a $531 price target on Mastercard, which implies an upside potential of 15.3%. The firm sees Mastercard sustaining 12% or more revenue growth and mid-to-high teens EPS growth over the next three years, with projected operating margin expansion of 80 basis points for fiscal 2025.
Mastercard stock has a consensus “Strong Buy” rating. Out of the 33 analysts offering recommendations for the stock, 29 recommend a “Strong Buy,” three suggest a “Moderate Buy,” and the remaining one analyst gives a “Hold” rating.
The average analyst price target of $493.57 indicates a potential upside of 7.2% from current price levels. The Street-high price target of $545 suggests that the stock could rally as much as 18.4%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
