Put It on My Card: Why Luxury Brands and Payments Firms Pair Well
It's easy for investors to work in silos, focusing in on particular corners of the market that they have special interest or expertise in. However, pairing stocks from distinct sectors can provide an opportunity for strategic synergy. One combination that investors may be inclined to overlook is luxury brands and payments companies. Both of these firms benefit from global growth trends, as a growing population of affluent consumers is likely to increasingly target luxury goods while also boosting its digital payments volume.
Two companies that may make a compelling pair for those interested in this strategic focus are Ferrari N.V. (NYSE: RACE) and Mastercard Inc. (NYSE: MA). Together, these firms provide diversification while still maintaining the above thematic overlap, and they are both likely to benefit from a resurgence in consumer spending, or in particular from spending by wealthy individuals. As lower-income consumers face more challenging economic conditions, wealthier consumers are still spending more freely, making the luxury-payments combination all the more appealing in this moment. Finally, if digital payments should surge independent of luxury spending, there is the potential for an asymmetrical benefit for investors nonetheless.
Ferrari's Shift to Electric Could Be a Game-Changer, But There Is Risk as Well
Italian luxury sports car maker Ferrari is one of the most prominent luxury brands available to investors, with a market cap approaching $100 billion. In the second quarter, the firm posted solid top- and bottom-line surprises, along with revenue of 1.8 billion euros (approx. $2.1 billion). Other financial figures were also strong, including EBITDA that came in above €700 million and industrial free cash flow of €232 million (about $810 million and $268 million, respectively). The company also affirmed recently that its order book is filled through 2027, indicating that it remains a highly popular brand.
One reason to consider an investment in Ferrari now is that the company plans to launch its first fully electric model sometime next year, with a major shift that will see a majority of the firm's lineup utilizing hybrid or electric power. This is an exciting opportunity but also a risk for the firm, whose customers are accustomed to a particular driving experience so far linked with traditional power.
Tariffs have also been a risk for Ferrari and other international luxury brands, but executives reaffirmed 2025 guidance in the July earnings report. This should free the firm up to complete its massive €2 billion (roughly $2.3 billion) share repurchase program as well. Analysts are very optimistic that the firm will rise to the opportunity that electric vehicles present. Eleven out of 12 analysts rate Ferrari a Buy, with a consensus price target of $505.50, indicating 28% potential upside. Still, the investor community may be less bullish—short interest in RACE shares has spiked by 45% in the last month.
Mastercard Smashed Earnings Expectations as It Buys Back Shares and Expands Into Crypto
Fresh off its third-quarter earnings report, Mastercard was able to maintain spending volumes, enabling it to beat analyst predictions for profit despite widespread concerns about consumer sentiment heading into the second half of the year. Net revenue also climbed by 15% year-over-year (YOY), and value-added services climbed by 22% over the same period.
Mastercard is positioning itself well with regard to AI, having successfully launched AgentPay and partnering with a number of major AI-focused firms in a bid to claim new payment flows related to the space. This is on top of other new service offerings, including threat intelligence, merchant cloud services, and more, all of which may provide some protection in case spending does begin to trend downward. The company is also expanding into the crypto space with an intended acquisition of Zerohash for up to $2 billion.
For the time being, investors may not have to worry about the health of MA shares. The company repurchased $3.3 billion in stock during the latest quarter and appears poised to continue boosting shareholder value going forward as well. With these factors in mind, analysts are nearly universally optimistic about Mastercard. Of the 29 analysts, 27 have ranked the company a Buy, including upgrades by Citigroup and Wells Fargo in the last week of October. The company could also have approximately 16% further upside potential in the near term.
Learn more about RACE
