Investing.com -- Piper Sandler analyst Bill Carcache launched coverage of the payments and consumer finance sector with a "selectively constructive view," naming Visa (NYSE: V), Mastercard (NYSE: MA), American Express (NYSE: AXP), Capital One (NYSE: COF) and Affirm (NASDAQ: AFRM) as Overweight-rated picks.

The analyst also initiated PayPal (NASDAQ: PYPL) at Neutral and upgraded Block (NYSE: XYZ) to Overweight from Underweight.

The broker’s Overweight ratings target companies that can convert "durable network activity, customer engagement, credit discipline, capital return, operating leverage, or GAAP EPS scaling into share appreciation without requiring broad multiple expansion."

Carcache said valuation compression across the group has been driven mainly by multiple contraction rather than deteriorating earnings, with positive EPS revisions across most names more than offset by falling price-to-earnings (P/E) ratios over the past year.

Visa, given a $394 price target, and Mastercard, with a target of $597, face investor skepticism over slowing "electronification" trends as payment volume growth converges with personal consumption expenditure growth.

But Piper Sandler argues both companies’ core revenue remains tightly linked to network activity and that scaled value-added services businesses—now generating more than $12 billion and $14 billion in annual run-rate revenue, respectively—support continued earnings durability.

American Express, with a $396 target, is viewed as "one of the cleanest compounders in consumer finance," citing a 26% average return on equity since the financial crisis, the highest among financials peers screened.

Similarly, Carcache likes Capital One as an "earnings power transformation" story as its Discover acquisition lifts return on tangible equity (ROTCE) toward the mid-20% range and lowers the company’s overall credit-loss content.

Block, raised to Overweight with a $100 target, was highlighted for double-digit gross profit growth potential and margin expansion.

Carcache said the stock screens as "one of only 16 companies in the S&P 500 with at least $10bn in gross profit and greater than 15% gross profit growth," despite trading without its historical valuation premium.

Affirm, initiated at Overweight with a $103 target, is described as a "scaled BNPL platform whose growth, unit economics, and credit performance increasingly support a path to durable GAAP profitability," with emerging operating leverage and stabilizing credit metrics.

PayPal was the lone Neutral, at a $42 target, seen as a "quintessential ’show-me’ story" given a decade of decelerating growth and three distinct cycles of negative earnings revisions, with continued compression in its transaction take rate offsetting stabilization in branded checkout volume mix.

Across the coverage list, Carcache said initial jobless claims remain its preferred "north star" for monitoring credit-cycle risk, noting current levels remain benign even as BNPL lenders face untested exposure to a full downturn.