Balanced View on MasterCard - Analyst Blog

By
A A A

On Jun 20, 2014, we issued an updated research report on MasterCard Inc. ( MA ). 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% for 2013-2016.

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. ( PAY ), Xoom Corp. ( XOOM ) and Fidelity National Information Services Inc. ( FIS ). All these stocks sport a Zacks Rank #1 (Strong Buy).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

VERIFONE SYSTMS (PAY): Free Stock Analysis Report

MASTERCARD INC (MA): Free Stock Analysis Report

FIDELITY NAT IN (FIS): Free Stock Analysis Report

XOOM CORP (XOOM): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: PAY , MA , FIS , XOOM

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stocks

Referenced

Most Active by Volume

44,823,339
  • $75.19 ▲ 0.28%
43,744,171
  • $3.44 ▼ 0.29%
42,340,022
  • $97.671 ▲ 0.66%
34,178,145
  • $17.62 ▼ 1.23%
34,028,998
  • $15.59 ▼ 0.19%
32,055,708
  • $21.23 ▼ 2.41%
31,539,235
  • $3.76 ▲ 0.80%
30,434,619
    $34.25 unch
As of 7/25/2014, 04:03 PM