ZACKSยท2025-10-21 17:16Core Insights - Mastercard and American Express are two prominent players in the payments industry, each with distinct business models and strengths [1][2] - The current financial landscape, influenced by interest rates and consumer spending, is drawing investor interest towards payment stocks [2] Group 1: American Express - American Express operates a closed-loop model, issuing cards and acquiring merchants, which provides insights into consumer spending and fosters brand loyalty among affluent users [3] - In the last reported quarter, American Express's total revenues rose 11% year-over-year to $18.4 billion, driven by increased card member spending and higher loan balances [4] - However, American Express's reliance on high-income consumers makes it vulnerable to economic fluctuations, with provisions for credit losses reaching $3.8 billion in the first nine months of 2025 [5][6] Group 2: Mastercard - Mastercard's asset-light model connects banks, merchants, and consumers without direct lending, allowing it to earn transaction fees while avoiding credit risk [7] - In the last reported quarter, Mastercard's revenue grew 16.8% year-over-year to $8.1 billion, with adjusted operating income rising 18% to $4.9 billion [8] - Mastercard's global diversification and strong presence in emerging markets position it for sustained growth, with a return on capital of 55.5%, significantly higher than American Express's 11.9% [9][10] Group 3: Financial Performance and Valuation - Zacks Consensus Estimates project Mastercard's 2025 sales and EPS to grow by 15.2% and 11.9%, respectively, while American Express's estimates indicate 8.8% sales growth and 14.6% EPS growth [12] - Mastercard's forward P/E ratio is 30.64, reflecting its greater earnings visibility and lower balance-sheet risk compared to American Express's 20.56 [13] - Year-to-date, Mastercard shares have increased by 7.6%, while American Express shares have risen by 17.8% [17] Group 4: Conclusion - Both companies are significant in the payments industry, but American Express faces risks due to its lending exposure and economic sensitivity [19] - Mastercard's diversified model and focus on innovation position it as a stronger choice for investors, with greater return on capital and upside potential [20][21]