Analysts at Bank of America downgraded Visa (NYSE:V) and Mastercard (NYSE:MA) shares from Buy to Neutral.
V and MA shares fell 1.2% and 1.6% in premarket trading, respectively.
The move, which comes as a non-consensus call, is due to stocks’ “limited upside to the valuation multiple and estimates,” despite an optimistic outlook on their premier 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, the current valuation premium for V/MA compared to the S&P 500 is below historical averages.
They also suggested that in the event of macroeconomic disruptions, V and MA might benefit from investor rotation, a factor that has negatively impacted the stocks year-to-date.
“We see C2Q estimates as achievable amid generally stable consumer spending, but V/MA guides still embed F2H acceleration,” analysts said.
As their core business matures, Visa and Mastercard have shifted focus to value-added services and new flows for revenue growth, BofA pointed out.
However, recent growth in these areas has been inconsistent, facing challenges as they expand.
“Our analysis suggests modestly less confidence in V/MA’s ability to grow net revs >10% over the next 5 years,” analysts wrote. “We still view V/MA as fairly reliable compounders, but potentially at a slower rate than pre-pandemic.”