At a recent investor meeting,
) laid down its growth projections for the upcoming quarters. The
guidance reflected a lukewarm top-line escalation in the second
half of 2012.
Difficult comps, timing of the deal renewals and economic
volatility has led management to peg top-line growth below 13% for
the second half of 2012. The sluggish and volatile credit quality
of the market, amid the recent global crisis, has adversely
affected MasterCard's credit and charge card growth.
Furthermore, MasterCard continues to face headwinds in
maintaining the cost of operations of its vastly expanded business.
While operating costs continues to showcase an increasing trend,
higher expenses on litigation settlements and other regulatory
challenges not only weigh on the financials but also impose
restrictions on the scope of business growth.
In addition, strong competition and stringent regulatory reforms
have disturbed the pricing, credit allocation and business model of
the company. Subsequently, currency and interest rate fluctuations,
along with higher rebates and incentives passed on to the customers
and intermediaries, have been consistently weighing on the margins
of the company.
Going ahead, intense competitive pressure, from arch rivals such
American Express Co.
), amid ongoing weak global cues is likely to add to the woes.
As a result, management disclosed its tapered long-term
anticipation of achieving compounded annual growth of 11-14% for
the period 2013-2015, while operating margin could be sustained at
least at 50%. As well, earnings per share are expected to grow at a
compounded annual rate of minimum 20%.
Moreover, card giants such as MasterCard and Visa are expected
to witness bottom-line growth of about 20% over the next 3-5 years,
which is quite lower than the historic average 30% growth achieved
in the past 5 years. Even Thomson Reuters assimilated the street
expectations that MasterCard would generate $1.94 billion in
revenues in the third quarter of 2012, which would climb 7% from
the year-ago quarter.
Nevertheless, we believe that a stable economy and a proactive
expense management could help the card giants, particularly
MasterCard to rebound to its historical highs. Despite the economic
turmoil that eroded the reserves of most of the organizations,
MasterCard enjoys strong cash and available-for-sale investment
position along with strong operating cash flow, retained earnings
and no long-term debt for over a couple of years now. As a result
of this strong balance sheet position, the company aims to continue
executing its share repurchase program even in the current bumpy
Hence, based on the pros and cons, the Zacks Consensus Estimate
pegs earnings for the third quarter of 2012 at $5.92 per share,
which is about 5% higher than that of the year-ago quarter. For
2012 and 2013, earnings per share are expected to climb about 17%,
over prior year, to $21.84 and $25.61, respectively.
MasterCard currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating and indicates no clear directional
pressure on the stock in the near term.
AMER EXPRESS CO (AXP): Free Stock Analysis
MASTERCARD INC (MA): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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