Visa (V) and Mastercard (MA) could face elevated regulatory activity that could limit multiple expansion, BofA Securities said in a Wednesday note as it downgraded the credit-card companies to neutral from buy.
“Historically, we have largely treated [Visa and Mastercard] regulatory developments as no more than modest headline risk,” the firm said. “However, as the recent unexpected rejection of the proposed merchant litigation settlement illustrates, the regulatory environment has arguably become more volatile and unpredictable.”
BofA said that some of the regulatory items to monitor include next steps in merchant litigation, the proposed Credit Card Competition Act and the Fed’s final decision on lower regulated debit interchange rates.
The firm added that the two companies remain relatively “crowded” longs for long-only and hedge-fund investors.
BofA said it continues to have a favorable view on the companies’ “premier business model and competitive moat.”
Shares of Visa were down 1.5% and shares of Mastercard fell 2.6% in recent Wednesday trading.