On Aug 25, shares of Mastercard Inc. MA touched a 52-week high of $348.46 before closing the session a tad lower at $347.66. Over the past year, the stock has rallied 26.4% compared with its industry’s growth of 10.7%.
This upside can be attributed to investors’ confidence in the company’s ability to gain from the continuous usage of cards in making payments along with the rising digital payments despite the current economic uncertainty.
Mastercard has built a strong ecosystem over time with a worldwide payment processing network along with a sturdy brand value and consistent investment in technology to stay ahead of the changing markets.
What’s Driving This Outperformance?
Recently, the company extended its partnership with TransferWise, thereby broadening its global reach. With this expansion, cards can be issued in any market around the globe where Mastercard is accepted and TransferWise is licensed. It also expanded its Accelerate portfolio, which was launched last year to enable the company to work with several fintechs in a simplified manner. The expansion has been carried out through two programs included in the company’s Accelerate portfolio, namely Mastercard Start Path and Mastercard Engage.
Notably, Mastercard inched closer to seal its acquisition of Nets payment unit by winning the European Union’s (EU) antitrust approval. The addition of Nets technology and teams to its portfolio will complement the existing account-to-account capabilities. The $3.2-billion worth buyout deal is the biggest win for the company and will help widen its footprint in the space of real-time payments solutions. Moreover, the contract will strengthen Mastercard’s unique position as the one-stop partner of any bank, merchant or government regarding payment needs.
Mastercard used acquisitions to supplement its organic efforts and diversify its revenues. Most acquisitions made by the company focused on areas, such as data analytics, cyber and intelligence plus loyalty and costs in developing multi-rail solutions for its customers. It expects such acquisitions to contribute about 1 ppt to revenues for the ongoing year.
Its Service business provides solid revenue diversification beyond its core payment processing business. This specific operation offers services like fraud detection, reward program management, consulting and data analytics to merchants and financial institutions.
Mastercard is well-poised for growth on the back of its solid international operations and higher demand for digital payments. The COVID crisis accelerated the use of electronic forms of payment, leading to greater adoption of digital and contactless solutions. The digital payment trend is expected to sustain beyond the pandemic. Key trends include a preference for contactless transactions, rapid adoption of e-commerce and an increased aversion to cash, merchant requirements for omnichannel acceptance and a need to automate business-to-business payments. Each of these provides an opportunity for the company’s business to expedite the shift to digital forms of payment.
We believe that these efforts will continue to augur well for the company in the long haul, helping it scale new heights.
Its long-term growth rate stands at 17.5%, higher than its industry's average of 16.3%.
Mastercard carries a Zacks Rank #3 (Hold), currently.
Better-ranked stocks include Envestnet Inc. ENV, QIWI PLC QIWI and International Money Express Inc. IMXI, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Envestnet, QIWI and International Money beat on earnings in each of the last four quarters, the average being 14.3%, 24.9% and 33.3%, respectively.
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