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BofA downgrades both Visa and MasterCard stocks by Investing.com

BofA downgrades both Visa and MasterCard stocks by Investing.com

Analysts at Bank of America downgraded shares of Visa (NYSE:) and Mastercard (NYSE:) to Neutral from Buy.

V and MA shares fell 1.2% and 1.6%, respectively, in premarket trading.

The move, which came as a non-consensus call, was driven by “the valuation multiple and limited upside potential relative to estimates” despite the optimistic outlook on the stock’s top-notch business model and competitive moat.

Analysts also noted that investor positioning remains crowded and regulatory developments could hinder multiple expansions and V/MA’s ability to adjust pricing. Despite this, V/MA’s current valuation premium relative to the S&P 500 is below historical averages.

They also noted that V and MA could benefit from investor rotation in the event of macroeconomic disruptions, which has had a negative impact on stocks since the beginning of the year.

“We think C2Q forecasts are achievable in an environment where consumer spending is generally stable, but V/MA guidance still includes F2H momentum,” the analysts said.

Visa and Mastercard are focusing on value-added services and new streams for revenue growth as their core businesses mature, BofA said.

However, growth in these areas has been uneven in recent times and has faced challenges as they have expanded.

“Our analysis suggests slightly less confidence in V/MA’s ability to grow net income by more than 10% over the next 5 years,” the analysts wrote. “We still view V/MA as a fairly reliable compound, but potentially at a slower rate than pre-pandemic.”