Bernstein analyst Harshita Rawat rated Visa Inc., Mastercard Inc. and First Data Corp. "outperform" and assigned a "market-perform" rating on PayPal Holdings Inc. as she initiated coverage on the four largest U.S. payment processors.
The analyst estimated that only 43% of consumer-to-business payments are made by cards, and that cards' share of total payments will grow 2 percentage points per year to 51% by 2022. Rawat added that the industry has only scratched the surface for business-to-business and business-to-consumer payments, which could expand the addressable market by 50% over a five-plus year horizon.
She wrote that Visa and Mastercard remain the "crown jewels" of the payments market, as their "powerful duopoly" remains the clear beneficiary of growth in payments.
Rawat believes First Data is a "compelling deleveraging story" on track to being investment grade by 2020. Risks include a possible recession and rising interest rates.
The analyst is cautious on PayPal's shares, in light of its dependency on business from eBay Inc. and intensifying competition in the e-commerce space.
Rawat put a price target of $143 on Visa's shares and introduced EPS projections of $4.44 and $5.23 for 2018 and 2019, respectively.
The price target for Mastercard is $207, while its EPS expectations for 2018 and 2019 are $6.11 and $7.11, respectively.
Rawat set a price target of $20, as well as 2018 EPS of $1.40 and 2019 EPS of $1.59, for First Data.
The price target for PayPal is $82, with 2018 and 2019 EPS forecasts of $2.27 and $2.68, respectively.