Payments Stocks: Jefferies Likes V, MA, SQ, Cautious on PYPL

Jefferies says it's getting more selective in the payments-services space. It's favorable on several blue chips, but not all.

A Mastercard card sitting on a 100-dollar bill
(Image credit: Getty Images)

2021 was a trying time for shareholders of major payments stocks. During a period in which the S&P 500 racked up roughly 27% gains, Mastercard (MA, +0.7%), Visa (V, -0.9%), PayPal (PYPL, -19.5%) and Square (SQ, -25.8%) fell prey to gravity.

Research outfit Jefferies, however, believes respite is nigh – for most of this group, anyway.

Jefferies analyst Trevor Williams says in a Wednesday note that despite underperformance in 2021, which might otherwise precede an industry-wide bounce-back, he’s being more selective in 2022. The rationale: The competitive disruption narrative that took hold last year might take a breather, but is unlikely to reverse.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%
https://cdn.mos.cms.futurecdn.net/flexiimages/xrd7fjmf8g1657008683.png

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of Kiplinger’s expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of Kiplinger’s expert advice - straight to your e-mail.

Sign up

Chart of V, MA, SQ, PYPL and the S&P 500

(Image credit: YCharts)

Jefferies' Take on Payments Stocks V, MA, SQ and PYPL

For instance, he says he sees the "cleanest setup for V and MA in more than two years, with '22 poised for upward revisions." He adds that he favors Visa stock tactically in the near-term but prefers Mastercard stock across all of 2022. He sees both possibly enjoying upside from cross-border payments.

Williams also calls Square a “top pick” among payments stocks, with less competitive risk than other payments sub-industries, as well as a valuation that’s attractive relative to growth. He does warn, however, that "the impact to high-growth multiples from a rising 10-year Treasury has exacerbated concerns tied to Cash App visibility."

But at the same time that he reiterated Buy ratings on V, MA and SQ, he downgraded PayPal to Hold.

“With our expectation for growth to remain sub-20% year-over-year through at least [the second quarter of 2022], we do not see a positive catalyst in the near term. … And with valuation still roughly five times above pre-COVID averages, we see little room for expansion.”

Kyle Woodley
Senior Investing Editor, Kiplinger.com

Kyle is senior investing editor for Kiplinger.com. As a writer and columnist, he also specializes in exchange-traded funds. He joined Kiplinger in September 2017 after spending six years at InvestorPlace.com, where he managed the editorial staff. His work has appeared in several outlets, including U.S. News & World Report and MSN Money, he has appeared as a guest on Fox Business Network and Money Radio, and he has been quoted in MarketWatch, Vice and Univision, among other outlets. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.