Payments processing giant Mastercard Incorporated (MA) is scheduled to release its third-quarter (ended September 30, 2023) earnings on October 26. For the quarter, the company is expected to report higher EPS and revenue compared to the previous year.
In this piece, I have assessed the stock’s growth prospects and why it would be wise to buy the stock now.
Analysts expect MA’s EPS for the third quarter to increase 20% year-over-year to $3.21. Its revenue for the same quarter is expected to increase 13.4% year-over-year to $6.53 billion. The company has a solid earnings history, having beaten the consensus estimate in each of the trailing four quarters.
Despite the uncertain macroeconomic conditions, consumer spending continues to remain strong, as was evident from the 0.7% rise in September. Robust consumer spending is expected to have boosted MA’s processed transactions during the third quarter.
Similarly, given the robust travel trends, cross-border volumes are expected to have increased significantly during the quarter. Moreover, increased domestic and international card usage is expected to have driven the increase in its Gross Dollar Volume (GDV). All these factors are expected to have boosted MA’s bottom line during the third quarter.
MA’s stock has gained 11.3% year-to-date and 26.6% over the past year to close the last trading session at $386.91. Wall Street analysts expect MA’s stock to hit $460.44 in the near term, indicating a potential upside of 19%.
Here’s what could influence MA’s performance in the upcoming months:
Robust Financials
MA’s net revenue for the second quarter ended June 30, 2023, increased 14% year-over-year to $6.27 billion. Its adjusted net income increased 9.8% over the prior-year quarter to $2.74 billion. The company’s adjusted operating margin stood at 58.6%, compared to an operating margin of 57.9% in the year-ago quarter. Also, its adjusted EPS came in at $2.89, representing an increase of 12.9% year-over-year.
Favorable Analyst Estimates
Analysts expect MA’s EPS for fiscal 2023 and 2024 is expected to increase 14.1% and 19% year-over-year to $12.15 and $14.46, respectively. Its fiscal 2023 and 2024 revenue is expected to increase 13.3% and 13.1% year-over-year to $25.20 billion and $28.49 billion, respectively.
Stretched Valuation
In terms of forward EV/EBITDA, MA’s 24.34x is 143.1% higher than the 10.01x industry average. Likewise, its 14.81x forward EV/Sales is 388.7% higher than the 3.03x industry average. Its 31.85x forward non-GAAP P/E is 280.2% higher than the 8.38x industry average.
High Profitability
In terms of the trailing-12-month net income margin, MA’s 43.37% is 69.7% higher than the 25.56% industry average. Likewise, its 60.33% trailing-12-month EBITDA margin is 207.1% higher than the industry average of 19.64%. Furthermore, the stock’s 0.63x trailing-12-month asset turnover ratio is 197.3% higher than the industry average of 0.21x.
Solid Historical Growth
MA’s revenue has grown at a 13.3% CAGR over the past three years and an 11.1% CAGR over the past five years. Its EBITDA has grown at a 14.1% CAGR over the past three years. Its net income and levered FCF have grown at 11.8% and 15.2% CAGRs over the past three years.
POWR Ratings Show Promise
MA has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MA has a B grade for Quality, consistent with its high profitability. It has a B grade for Stability, in sync with its 1.07 beta.
MA is ranked #6 out of 48 stocks in the Consumer Financial Services industry. Click here to access MA’s Growth, Value, Momentum, and Sentiment ratings.
Bottom Line
MA is expected to report strong growth in its earnings and revenue for the third quarter, driven by robust consumer spending and travel demand. Despite the challenges of a weakening U.S. economy, MA’s growth is expected to be supported by spending in other geographies.
Given its strong fundamentals, favorable analyst estimates, high profitability, and solid historical growth, it could be wise to buy the stock now.
How Does Mastercard Incorporated (MA) Stack Up Against Its Peers?
While MA has an overall grade of B, equating to a Buy rating, you may also check out these other B (Buy)-rated stocks within the Consumer Financial Services industry: EZCORP, Inc. (EZPW), Regional Management Corp. (RM), and Qifu Technology, Inc. (QFIN). For exploring more B-rated Consumer Financial Services stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
MA shares were trading at $385.00 per share on Wednesday morning, down $1.91 (-0.49%). Year-to-date, MA has gained 11.39%, versus a 10.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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