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

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.

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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.”