MasterCard Charges Higher

11/14/2011


  Recent Price
$368
  Dividend
$0.60
  Yield
0.2%
  P/E Ratio
21
  Shares (millions)
127
  52-Week Price Range
$368.99 - $215.00

MasterCard ($368; MA) offers the convenience of a secure, electronic payment network for credit, debit, and prepaid cards. The source of its revenue streams — determined by the size and number of transactions processed — forms a safety net of its own for MasterCard, shielding the company from inflationary pressures.

Both spending and credit-card counts are trending modestly upward. According to credit-card researcher CardHub, U.S. consumers increased their credit-card debt load by more than $18 billion in the June quarter, up 66% from the same quarter a year earlier. CardHub estimates that in 2011, consumers will spend about $50 billion more using credit cards than they did in 2010.

In the September quarter, MasterCard topped consensus profit estimates for a seventh consecutive quarter. The company's U.S. purchase dollar volume (total amount spent on purchases) rose nearly 14% in the quarter, with global volume up 22% on a 15% increase in transactions processed.

Revenue has advanced at least 10% in each of the last four quarters, and operating profit margins continue to widen. MasterCard is a Focus List Buy and a Long-Term Buy.

Doors unlocked and open

Regulations to limit debit-card interchange fees — the amount banks charge merchants when customers use debit cards — took effect Oct. 1. In early November, MasterCard said it was too early to quantify the effect of the new rules on U.S. debit volumes.

But whatever the effect, rival Visa ($95; V) should feel a lot more pain. Visa's U.S. debit-purchase volume topped $1 billion last year, roughly three times MasterCard's volume. The new rules also require banks to give merchants multiple processing options, allowing MasterCard to break into areas once locked up by Visa's exclusive relationships. Last month, MasterCard poached from Visa the debit-card portfolio of a regional bank whose customers made $6.7 billion in debit-card purchases last year. Those purchases would represent about 2% of MasterCard's current volume.

As the U.S. landscape shifts, MasterCard works to increase its presence in international markets and rack up new deals. Nearly 33 million locations accept MasterCard's credit and debit programs, including more than 24 million outside the U.S. About 63% of MasterCard's purchase volume in the nine months ended September originated in foreign countries.

Conclusion

After delivering a 65% total return so far this year, MasterCard shares are no longer a bargain. The stock trades at 21 times trailing earnings, 11% below its five-year average but 11% above its peer group of S&P 1500 data-processing companies.

However, MasterCard's outsized growth prospects make the stock a worthwhile play. Per-share earnings are expected to increase 17% next year. The company sees annualized per-share-profit growth of at least 20% through 2013. About 85% of global transactions still involve cash, so MasterCard has plenty of room to grow. An annual report for MasterCard Inc. is available at 2000 Purchase St., Purchase, New York, NY 10577; (914) 249-2000; www.mastercard.com.

MASTERCARD
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '11
5.63
vs.
3.94
+ 27%
361.94
-
291.67
22 - 18
Jun '11
4.76
vs.
3.49
+ 22%
309.81
-
251.94
21 - 17
Mar '11
4.29
vs.
3.46
+ 15%
262.38
-
219.33
19 - 16
Dec '10
3.16
vs.
2.24
+ 11%
260.72
-
215.00
20 - 16
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
5.54
14.05
0.60
269.88
-
191.00
19 - 14
2009
5.10
11.16
0.60
259.00
-
117.06
23 - 10
2008
4.99
9.01
0.60
320.30
-
113.05
36 - 13
2007
4.07
8.00
0.54
227.18
-
95.30
28 - 12
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
86
92
30
98
98
30
93

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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