MasterCard Steady on Growth Track - Analyst Blog


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MasterCard Inc. 's ( MA ) first-quarter 2012 operating earnings per share of $5.36 modestly surpassed the Zacks Consensus Estimate of $5.30 and also outpaced the year-ago quarter's earnings of $4.29 per share. Net income for the reported quarter stood at $682 million, spiking 21.4% from $562 million in the prior-year quarter.

The year-over-year upbeat results were primarily due to better pricing, an increased number of processed transactions, strong gross dollar value (GDV) growth and lower tax rate. However, higher-than-expected acquisition and operating expenses partially limited the margins' upside.

Total revenue surged 17.1% year over year to $1.76 billion, also beating the Zacks Consensus Estimate of $1.73 billion. On a constant currency basis, net revenue increased 19.0% and excluding the acquisition of Access Prepaid, net revenue grew about 16.0%. The upside was primarily due to a 29.0% jump in the number of processed transactions to 7.7 billion along with an 18.0% increase in cross-border volumes.

During the reported quarter, GDV increased 18.0% to $849 billion, while worldwide purchase volume climbed 17.0% year over year, on a constant currency basis, to $629 billion. As of March 31, 2012, MasterCard issued 1.8 billion MasterCard-and Maestro-branded cards.

Total operating expenses increased 14.0% year over year to $758 million. Currency fluctuations had minimal impact on operating expenses. The overall increase primarily resulted from a 28.6% year-over-year upsurge in depreciation and amortization expenses along with a 17.2% increase in general and administrative expenses. However, advertising and marketing expenses dipped 3.1% year over year to $125 million.

Excluding the Access Prepaid acquisition, operating expenses increased 9% during the reported quarter. Consequently, operating income escalated 19.6%year over year to $1.0 billion in the reported quarter. Moreover, operating margin rose to 56.9%, slightly up from 55.7% in the year-ago quarter.

MasterCard's effective tax rate for the reported quarter was 31.8%, slightly lower than 32.8% in the year-ago period, primarily attributable to a favourable geographic mix of earnings in 2012.

Financial Update

As of March 31, 2012, MasterCard's net operating cash flow grew 20.2% year over year to $427 million. At the end of the reported quarter, cash and cash equivalents slightly reduced to $3.68 billion from $3.73 billion at 2011-end, while long term-debt remained nil.

Meanwhile, retained earnings increased to $5.39 billion at the end of the reported quarter from $4.75 billion at the end of 2011. Total equity grew to $6.38 billion from $5.88 billion as of December 31, 2011.

Share Repurchase Update

During the reported quarter, MasterCard repurchased about 0.65 million shares for $248 million. The company bought back about 0.11 million shares for $49 million in 2011. Until April-end, MasterCard has already bought about an additional 304,600 shares for approximately $106 million since the fourth quarter of 2011.

On April 12, 2011, MasterCard approved and authorized the extension of its stock repurchase program to $2 billion from $1 billion. To date, about $556 million of stock remains available under the current repurchase program authorization.

Dividend Update

On February 7, 2012, the board of MasterCard announced a 100% hike in its dividend to 30 cents per share from the prior 15 cents per share. The increased dividend will be paid on May 9, 2012 to shareholders of its Class A common stock and Class B common stock as of April 9, 2012.

On December 6, 2011, the board of MasterCard announced a quarterly cash dividend of 15 cents per share, which was paid on February 9, 2012 to its equity classes of record as on January 9, 2012.

Our Take

MasterCard benefits from strong secular demand growth, meaningful international exposure, diversified product portfolio, high barriers, excellent pricing power, risk-free balance sheet and impressive operating leverage. While the company is steadily gaining share of the US debit card market, its latest acquisitions - DataCash and Access Prepaid - have increased operational efficiencies by about 25% so far.

Also, the above-average earnings growth, strong competitive position and leverage to an eventual economic recovery will result in a relative valuation premium.

However, we are concerned about MasterCard's resilience and ability to raise prices, increased operating expenses, the detrimental effects of the Consumer Protection Act in the U.S. and scope for increasing cash flow. Based on these factors, MasterCard carries a Zacks Rank #2, which implies a near-term Buy rating, while our long-term recommendation remains Neutral.

Besides, MasterCard's prime peer, Visa Inc. ( V ) is slated to report is fiscal second quarter 2012 (ended March 31, 2012) financial results after the closing bell today.

MASTERCARD INC (MA): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: GDV , MA , V

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