On Jun 20, 2014, we issued an updated research report on
). While costs related to acquisitions and borrowing, along with
regulatory compliances may limit a rise in margins in the near
term, the company's organic growth remains strong.
This Zacks Rank #3 (Hold) stock has delivered positive earnings
surprises in 3 of the last 4 quarters with an average beat of 3.3%.
The company's first-quarter 2014 earnings topped both the Zacks
Consensus Estimate by 1.4% and was higher than the year-ago quarter
figure by 17.7%.
The recent acquisitions (C-SAM and Provus), alliances and
technology upgrades, product- diversification (through e-Commerce,
prepaid and mobile commerce) and geographic-expansion initiatives
are expected to drive long-term growth.
Going ahead, the pending acquisitions of ElectraCard Services
and Pinpointwill will further enhance MasterCard's turnkey payment
processing solutions and customer loyalty. These should also help
management to outperform its target of maintaining operating
margins above the 50% benchmark and top-line growth of about 11-14%
Meanwhile, Moody's expects the company to operate favorably with
the $1.5 billion debt raised in Mar 2014, and still maintain a
long-term adjusted debt-to-EBITDA (earnings before interest, taxes,
depreciation, and amortization) of 1.0x going ahead. A strong
financial position and incremental capital deployment also stem
from improving operating leverage.
Conversely, MasterCard's high international exposure poses
headwinds like regulatory norms, currency fluctuations and other
operating challenges. Management's projection of generating net
revenue growth in 2014 at the lower-end of the 2013-2016 CAGR range
of 11-14% also reflect competitive pressure from peers, currency
fluctuations and higher chances of implementation of amended
regulations that may adversely affect cash flow.
Overall, a balanced risk-reward balance in the near term has
kept estimate revisions for 2014 and 2015 unaltered in the past 30
days. The Zacks Consensus Estimate for 2014 and 2015 is pegged at
$3.02 and $3.60 per share, respectively. However, on a
year-over-year basis, earnings are expected to grow by about 15.8%
in 2014 and 19.1% in 2015.
Key Picks in the Sector
Some better-ranked stocks in the financial sector include
VeriFone Systems Inc.
Fidelity National Information Services Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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VERIFONE SYSTMS (PAY): Free Stock Analysis
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