Recently, we reiterated our Neutral recommendation on
) based on its accelerated growth momentum, risk-free balance sheet
and competitive advantage, which are partially offset by higher
acquisition and operating expenses.
The company's 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. While
MasterCard is steadily gaining share of the U.S. debit card market,
its latest acquisitions DataCash and Access Prepaid have started
contributing to the earnings. However, higher-than-expected
acquisition and operating expenses partially limited the margins
MasterCard continues to drive growth through increased
cross-border volumes, improved pricing along with consistent growth
of processed transactions, which rose 29% year over year in the
first quarter of 2012. Moreover, the slow but steady recovery in
macro-economic factors is leading to improved consumer, business
and government spending, eventually impacting the top line and
Meanwhile, the debit card business also continues to post modest
growth now as MasterCard is able to process about half of the U.S.
debit cards. The company continues to diversify its product
portfolio through innovations that include ecommerce, mobile
payments (m-commerce), prepaid cards, smart cards and other
value-added services in order to realign itself to capitalize on
the most promising growth opportunities from both geographic and
product development standpoints.
MasterCard also enjoys strong cash and available-for-sale
investment position along with strong retained earnings and no
long-term debt for over a couple of years now. A strong operating
cash flow along with a $2.75 billion unused credit facility further
provides acquisition opportunities as well as scope for liability
reduction, stock repurchase and capital expenditure that will
enhance the operating and competitive leverage against arch-rival
MasterCard remains focused on its inorganic growth, through
acquisitions and alliances, as part of its long-term growth
strategy. The two latest acquisitions - DataCash in 2010 and Access
Prepaid in 2011 - have increased MasterCard's operational
efficiencies by about 25% so far, thereby complementing the
company's long-term growth strategy.
On the flip side, though, MasterCard continues to face headwinds
in maintaining the cost of operations of its vastly expanded
business. While personal costs are trending up due to
severance-related charges, the company's expenses on fixed
operations, acquisitions, rebates, incentives, legal, interest and
other non-operating expenses continue to weigh significantly on the
Moreover, currency and interest rate fluctuations along with
higher rebates and incentives are passed on to the customers and
intermediaries continue to weigh on the margins of the company.
Going ahead, intense competitive pressure and higher expenses in
the midst of the ongoing weak global cues could saturate the
margins and bottom-line results.
MasterCard's history of operations have also been tainted by
several state and federal lawsuits such as litigation cases where
interchange rates are violated, as well as some involving currency
conversion practices and pricing structure. The outlook is further
hampered by the ongoing regulatory challenges that are being faced
by the card industry, and which does not leave MasterCard
In the future, any substantial payment of damages would not only
have an adverse effect on the financials, but generating less
expensive cards, given the strict regulation on higher-end cards,
is also projected to trim a chunk of the top line.
Overall, based on the pros and cons, the Zacks Consensus
Estimate for the second quarter earnings is currently pegged at
$5.62 per share, shoring up about 18% year-over-year. In the last
30 days, 17 of the 27 firms covering the stock have raised their
estimates upward, while 6 downward revisions were witnessed.
Additionally, MasterCard carries a Zacks Rank #2, indicating
slight upward pressure on the shares over the near term and
suggesting a Buy recommendation. However, the long-term stance
MASTERCARD INC (MA): Free Stock Analysis Report
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