Ahead of the Bell: Visa and MasterCard

Deutsche Bank analyst Christopher Mammone cut his rating on MasterCard to "Hold" from "Buy."

The downgrade comes as MasterCard is in worse shape than Visa heading into a potential global recession, Mammone wrote in a research note. Mammone said MasterCard lags Visa in debit transactions, where the bulk of nondiscretionary spending continues. Visa also does not have exposure to a potential downturn in Europe, since its subsidiary is independent. Hedge funds also own a greater portion of MasterCard, which could make trading of its stock more volatile than Visa's, Mammone wrote in the note.

Mammone did say that despite the downgrade, MasterCard continues to be one of his favorite stocks in the payment processors sector.

The analyst maintained a "Buy" rating on Visa. But he cut his price target and earnings estimates for both MasterCard and Visa because of the potential onset of a global recession and how it could affect consumer spending. Visa and MasterCard earn the bulk of their revenue through fees each time customers use their branded cards to make purchases.

If consumer spending declines, fee revenue at the companies declines as well.

Currency exchange could also negatively affect MasterCard and Visa's earnings in the coming year, Mammone wrote in the note.

Mammone cut his price target for MasterCard to $200 from $350 and his 2009 earnings estimate to $10 per share from $11.25 per share.

He reduced his price target on Visa to $72 from $93 and his 2009 earnings estimate to $2.75 per share from $2.91 per share.

In premarket activity, Visa shares fell $2.52, or 5 percent, to $47.33. MasterCard shares slipped $4.70, or 3.1 percent, to $151.