Financial inclusion has triggered a large increase in digital payments amid the global expansion of formal financial services. Global cashless payment volumes are anticipated to increase by more than 80% from 2020 to 2025. PwC says this translates to “about 1 trillion transactions to about 1.9 trillion and almost triple by 2030.”
Moreover, the Fed’s rising interest rates to curb sky-high inflation would simultaneously move the interest rates charged by credit card companies up, covering their operating cost and generating an overall profit. Given this backdrop, let us now explore the fundamentally strong stock Mastercard Incorporated (MA).
MA is a technology company that provides transaction processing and other payment-related products and services in the United States and internationally. It facilitates the processing of payment transactions, including authorization, clearing, and settlement, and delivers other payment-related products and services.
On April 11, MA introduced Cross-Border Services Express, a new tool enabling financial institutions to seamlessly set up international payments for their customers, including consumers and Small and Medium-sized Enterprises (SMEs). Through this tool, consumers and businesses would be able to send money or pay vendors across the globe quickly and securely in a digital-first experience.
On February 14, MA’s board of directors declared a quarterly dividend of 57 cents per share, payable to holders of its Class A common stock and Class B common stock on May 9, 2023.
MA pays a dividend of $2.28 per share annually. This translates to a 0.61% yield on the current price level. Its dividends have grown at 13.2% and 17.7% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 0.50%.
The stock has gained 4.1% over the past year and 29% over the past six months to close the last trading session at $372.43. The stock is trading above its 50-day and 200-day moving averages of $360.22 and $341.97, indicating an uptrend. It has an average trading volume of 2.73 million.
Wall Street analysts expect the stock to reach $423.75 in the upcoming 12 months, indicating a potential upside of 13.8%.
Here are the factors that could influence MA’s performance in the upcoming months:
Strong Financials
For the fiscal year that ended on December 31, 2022, MA’s net revenue came in at $5.82 billion, up 11.5% year-over-year. Its adjusted net income stood at $2.55 billion, up 10.1% year-over-year. Its adjusted net earnings per share came in at $2.65 for the same year, up 12.8% from the year-ago period.
MA’s net cash provided by operating activities stood at $11.20 billion as of December 31, 2022, compared to $9.46 billion as of December 31, 2021. Also, its retained earnings stood at $53.61 billion compared to $45.65 billion as of December 31, 2021.
Robust Profitability
MA’s trailing-12-month EBIT margin of 56.77% is 156.2% higher than the industry average of 22.16%. Also, its trailing-12-month net income margin and levered FCF margin of 44.66% and 47.84% are 67.3% and 160.9% higher than the industry averages of 26.69% and 18.34%, respectively.
MA’s trailing-12-month ROCE, ROTC, and ROTA of 145.92%, 36.48%, and 25.64% are significantly higher than the industry averages of 11.13%, 5.01%, and 1.15%, respectively.
Optimistic Analyst Estimates
For the fiscal second quarter ending June 2023, analysts expect MA’s revenue to increase 12.9% year-over-year to $6.20 billion. Its EPS is estimated to grow 18.5% year-over-year to $3.03 for the same quarter. MA surpassed EPS and revenue estimates in all four trailing quarters, which is impressive.
POWR Ratings Reflect Promising Outlook
It is no surprise that MA has an overall B rating, equating to Buy in our 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. It also has a B grade for Sentiment, in sync with the optimistic analyst estimates.
Also, the B grade for Quality is consistent with its robust profitability. Within the 46-stock Consumer Financial Services industry, it is ranked #6.
To see the other ratings of MA for Growth, Stability, Value, and Momentum, click here.
View all the top stocks in the Consumer Financial Services industry here.
Bottom Line
Despite the recent banking crisis, consumer financial services stock MA looks well-positioned to witness significant growth. A persistent positive growth trajectory of MA seems ensured by the increasing transition from cash to digital transactions.
Furthermore, given the company’s solid financials, reliable dividend payments, robust profitability, and optimistic analyst estimates, it could be wise to add the stock now to ensure a steady passive income.
How does Mastercard Incorporated (MA) stack up Against its Peers?
While MA has an overall POWR Rating of B, one might want to consider looking at its industry peers, OneMain Holdings, Inc. (OMF), FirstCash, Inc. (FCFS), and Visa Inc. (V), which also have an overall B (Buy) rating.
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MA shares fell $1.43 (-0.38%) in premarket trading Monday. Year-to-date, MA has gained 7.45%, versus a 8.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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