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Is Mastercard Stock a Buy, Sell or Hold at a 30.9X P/E Multiple?
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Mastercard Incorporated (MA - Free Report) stock is trading at a premium compared with its Financial Transaction Services industry. With a forward 12-month Price/Earnings (P/E) ratio of 30.94X, it is above the industry’s average of 22.58X. In comparison, its peers, American Express Company (AXP - Free Report) and Visa Inc. (V - Free Report) , are trading cheaper at 18.54X and 24.72X, respectively.
Image Source: Zacks Investment Research
MA gained 14.5% in the past three months compared with the industry’s 8.4% rise and the broader sector’s rally of 5%. MA is trading above its 50-day and 200-day moving averages, indicating solid upward momentum. Now, let’s look closely at the factors driving Mastercard and assess if its high price is justified based on growth prospects.
MA’s 3-Month Price Performance
Image Source: Zacks Investment Research
Increasing Focus on Value-Added Services
Mastercard boasts a diversified business model in terms of operations. Its value-added services and solutions contributed 37.7% to total revenues in the first half of 2024, up from 37% in 2023. Its recent focus on enhancing its value-added services is evident through its updates to the AI-powered Consumer Fraud Risk solution. Mastercard is addressing a critical issue that cost consumers over $600 million in 2023. This would further solidify Mastercard's leadership in payment security and fraud prevention.
Additionally, Mastercard's acquisition of Recorded Future for $2.65 billion highlights its commitment to bolstering cybersecurity capabilities. The integration of Recorded Future’s AI-driven threat intelligence will enhance Mastercard’s ability to safeguard payment systems. This acquisition underscores Mastercard’s strategy of expanding its cybersecurity portfolio to meet growing demand.
What’s Driving MA?
MA’s purchase transactions are geographically diversified, with Europe accounting for 38.6% of the total number, followed by the United States, Latin America and Canada. The company is actively expanding its presence in CEMEA, Latin America, and the Asia-Pacific regions, aiming to capitalize on the ongoing shift from cash to digital payments.
Mastercard has strategically leveraged acquisitions and partnerships to expand market reach and enhance product offerings. MA recently partnered with Amazon Payment Services to enhance digital payment acceptance in the Middle East and Africa by offering secure, seamless solutions like Mastercard Gateway and innovative payment technologies. These partnerships and acquisitions underscore its commitment to innovation and global growth. It aims to redeploy its resources in markets with high levels of cash.
MA is also enhancing the online checkout experience through tokenization, Click-to-Pay and Payment passkeys. MA in August 2024, launched its Payment Passkey service in India, advancing its vision of a token economy. It expects to phase out manual card entry to bring in one-click checkout for e-commerce payments in Europe by 2030. It also aims to enhance the in-store checkout experience with Biometrics. Moves like these are expected to drive transaction volumes and enhance user’s trust in MA’s secure payment network.
The company's revenue trajectory reflects sustained growth, driven by consumer spending and robust card usage worldwide. Its digital initiatives position Mastercard for continued revenue expansion. MA’s improved net revenue guidance underscores its confidence in its strategic initiatives and its ability to navigate the economic landscape effectively.
Mastercard bought back 10.2 million common shares in the first half of 2024 and another 1.9 million shares in the quarter-to-date period through July 26. The company paid dividends worth $1.2 billion in the first half of 2024. With continued strength in its earnings and cash flow growth, MA is expected to continue carrying out shareholder value-enhancing initiatives.
Estimate Revision Favoring MA Stock
MA’s 2024 earnings have witnessed an upward estimate revision during the past 60 days. The Zacks Consensus Estimate for current-year adjusted earnings for MA is currently pegged at $14.30 per share, indicating 16.6% year-over-year growth. The consensus mark for 2025 indicates a further 16% jump. MA beat earnings estimates in each of the past four quarters, the average surprise being 3.5%.
Image Source: Zacks Investment Research
MA Stock Returns Higher Than the Industry
MA's trailing 12-month return on assets (ROA) is 30.2%, ahead of the industry average of 14.4%. ROA is a financial ratio that measures how well a company uses its assets to generate profit. The current ROA of the company indicates that it is using its assets more efficiently than its peers.
MA’s Risks
Mastercard’s business might face some regulatory obstacles, which can negatively impact its future growth rate. The Credit Card Competition Act of 2023 aims to induce competition in the credit card network, which might impact the margins of Mastercard. Higher competition would also imply lowering margins to survive in the market. Also, rising demand for security in cashless transactions and better rewards might result in higher costs. This might impact the bottom line in the future.
MA’s significantly high debt-to-equity ratio compared to the industry is a concern. High leverage may give rise to higher interest expenses in the future. The metric rose 9.8% year over year in the first half of 2024.
Conclusion: Hold MA Stock for Now
Mastercard’s strong growth prospects are evident through its diversified business model and expanding focus on value-added services. Recent innovations, like the AI-powered Consumer Fraud Risk solution and the Recorded Future acquisition, highlight its leadership in payment security and cybersecurity.
Mastercard’s robust financial performance and growth prospects make it a solid long-term investment. Its ongoing innovations, including digital checkout enhancements and global initiatives, are expected to drive higher transaction volumes, ensuring continued value for shareholders despite market challenges. As such, current investors should continue holding the stock. However, new investors might want to wait for the company to handle the regulatory obstacles and look for a better entry point.
Image: Bigstock
Is Mastercard Stock a Buy, Sell or Hold at a 30.9X P/E Multiple?
Mastercard Incorporated (MA - Free Report) stock is trading at a premium compared with its Financial Transaction Services industry. With a forward 12-month Price/Earnings (P/E) ratio of 30.94X, it is above the industry’s average of 22.58X. In comparison, its peers, American Express Company (AXP - Free Report) and Visa Inc. (V - Free Report) , are trading cheaper at 18.54X and 24.72X, respectively.
Image Source: Zacks Investment Research
MA gained 14.5% in the past three months compared with the industry’s 8.4% rise and the broader sector’s rally of 5%. MA is trading above its 50-day and 200-day moving averages, indicating solid upward momentum. Now, let’s look closely at the factors driving Mastercard and assess if its high price is justified based on growth prospects.
MA’s 3-Month Price Performance
Image Source: Zacks Investment Research
Increasing Focus on Value-Added Services
Mastercard boasts a diversified business model in terms of operations. Its value-added services and solutions contributed 37.7% to total revenues in the first half of 2024, up from 37% in 2023. Its recent focus on enhancing its value-added services is evident through its updates to the AI-powered Consumer Fraud Risk solution. Mastercard is addressing a critical issue that cost consumers over $600 million in 2023. This would further solidify Mastercard's leadership in payment security and fraud prevention.
Additionally, Mastercard's acquisition of Recorded Future for $2.65 billion highlights its commitment to bolstering cybersecurity capabilities. The integration of Recorded Future’s AI-driven threat intelligence will enhance Mastercard’s ability to safeguard payment systems. This acquisition underscores Mastercard’s strategy of expanding its cybersecurity portfolio to meet growing demand.
What’s Driving MA?
MA’s purchase transactions are geographically diversified, with Europe accounting for 38.6% of the total number, followed by the United States, Latin America and Canada. The company is actively expanding its presence in CEMEA, Latin America, and the Asia-Pacific regions, aiming to capitalize on the ongoing shift from cash to digital payments.
Mastercard has strategically leveraged acquisitions and partnerships to expand market reach and enhance product offerings. MA recently partnered with Amazon Payment Services to enhance digital payment acceptance in the Middle East and Africa by offering secure, seamless solutions like Mastercard Gateway and innovative payment technologies. These partnerships and acquisitions underscore its commitment to innovation and global growth. It aims to redeploy its resources in markets with high levels of cash.
MA is also enhancing the online checkout experience through tokenization, Click-to-Pay and Payment passkeys. MA in August 2024, launched its Payment Passkey service in India, advancing its vision of a token economy. It expects to phase out manual card entry to bring in one-click checkout for e-commerce payments in Europe by 2030. It also aims to enhance the in-store checkout experience with Biometrics. Moves like these are expected to drive transaction volumes and enhance user’s trust in MA’s secure payment network.
The company's revenue trajectory reflects sustained growth, driven by consumer spending and robust card usage worldwide. Its digital initiatives position Mastercard for continued revenue expansion. MA’s improved net revenue guidance underscores its confidence in its strategic initiatives and its ability to navigate the economic landscape effectively.
Mastercard bought back 10.2 million common shares in the first half of 2024 and another 1.9 million shares in the quarter-to-date period through July 26. The company paid dividends worth $1.2 billion in the first half of 2024. With continued strength in its earnings and cash flow growth, MA is expected to continue carrying out shareholder value-enhancing initiatives.
Estimate Revision Favoring MA Stock
MA’s 2024 earnings have witnessed an upward estimate revision during the past 60 days. The Zacks Consensus Estimate for current-year adjusted earnings for MA is currently pegged at $14.30 per share, indicating 16.6% year-over-year growth. The consensus mark for 2025 indicates a further 16% jump. MA beat earnings estimates in each of the past four quarters, the average surprise being 3.5%.
Image Source: Zacks Investment Research
MA Stock Returns Higher Than the Industry
MA's trailing 12-month return on assets (ROA) is 30.2%, ahead of the industry average of 14.4%. ROA is a financial ratio that measures how well a company uses its assets to generate profit. The current ROA of the company indicates that it is using its assets more efficiently than its peers.
MA’s Risks
Mastercard’s business might face some regulatory obstacles, which can negatively impact its future growth rate. The Credit Card Competition Act of 2023 aims to induce competition in the credit card network, which might impact the margins of Mastercard. Higher competition would also imply lowering margins to survive in the market. Also, rising demand for security in cashless transactions and better rewards might result in higher costs. This might impact the bottom line in the future.
MA’s significantly high debt-to-equity ratio compared to the industry is a concern. High leverage may give rise to higher interest expenses in the future. The metric rose 9.8% year over year in the first half of 2024.
Conclusion: Hold MA Stock for Now
Mastercard’s strong growth prospects are evident through its diversified business model and expanding focus on value-added services. Recent innovations, like the AI-powered Consumer Fraud Risk solution and the Recorded Future acquisition, highlight its leadership in payment security and cybersecurity.
Mastercard’s robust financial performance and growth prospects make it a solid long-term investment. Its ongoing innovations, including digital checkout enhancements and global initiatives, are expected to drive higher transaction volumes, ensuring continued value for shareholders despite market challenges. As such, current investors should continue holding the stock. However, new investors might want to wait for the company to handle the regulatory obstacles and look for a better entry point.
Mastercard currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.