5
Mastercard Incorporated (MA)
- Equity
- US
- Financial Services
RISK
RETURN
Key risk factors
Strong trading liquidity
Low price volatility
Limited default risk
Key return factors
Very strong margins and returns
Greatly overvalued vs peers
Good growth
Company profileMastercard Incorporated, a technology company, 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, as well as delivers other payment-related products and services. The company offers integrated products and value-added services for account holders, merchants, financial institutions, businesses, governments, and other organizations, such as programs that enable issuers to provide consumers with credits to defer payments; prepaid programs and management services; commercial credit and debit payment products and solutions; and payment products and solutions that allow its customers to access funds in deposit and other accounts. It also provides value-added products and services comprising cyber and intelligence solutions for parties to transact, as well as proprietary insights, drawing on principled use of consumer, and merchant data services. In addition, the company offers analytics, test and learn, consulting, managed services, loyalty, processing, and payment gateway solutions for e-commerce merchants. Further, it provides open banking and digital identity platforms services. The company offers payment solutions and services under the MasterCard, Maestro, and Cirrus. Mastercard Incorporated was founded in 1966 and is headquartered in Purchase, New York.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
36.00
32.00
PEG
3.20
-
P/B
58.80
20.60
P/S
16.40
15.10
P/FCF
38.00
35.30
EV/EBITDA
27.40
26.00
Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.
Performance: Mixed
The stock's performance has been mixed in the past six months, with growth following a decline. The stock has lagged its global peers from the same sector and industry (as shown above), underperforming then by 0ppts in total. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: Somewhat favourable
The average target price is 487 and suggests 8% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 615.0. This translates into 36% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 412.0. This is equivalent to 9% downside potential in the worst case.
Profitability: Very strong
RoE
Mastercard Incorporated reported a return on equity (RoE) of 167.2% in the last 12 months, down from 169.3% in FY23. The market consensus projects an RoE of 102.6% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 27.9% in the last 12 months, an increase from 27.6% in FY23. The market analysts predict that RoA will be 15.7% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 45.7%, below the peers. The consensus estimate for FY24 for RoCE is 33.3%, again behind the peers.
Net margin
EBITDA margin
Historically, MA has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 46.1%, a growth from 44.6% in FY23. The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 61.0% in the last 12 months, a decline from 61.1% in FY23.
RoIC / WACC = 6.5(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 6.5 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Good
Revenue
EBITDA
EPS
Free cash flow
MA reported revenue of USD 25 701mn in the last 12 months, up 2% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 6% from FY23 to USD 12.62. Market expects EPS to reach USD 14.23848 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA growth has been steady. This all contributed to continued EPS growth (positive-to-neutral). The FCF trend is in line with EBITDA. On the positive side, revenue dynamics is very stable.
Dividends: Decent
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been low and below its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.
Default risk: Limited
The risk of default is minimal. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, and solid cash flow generation, among the positive credit factors. Among the negative credit factors, we point to excessive margin volatility, poor working capital management, and an unfavourable capital structure.
Volatility: Low
In normal market circumstances, MA is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to minimal. Finally, it may be affected by inherently volatile sector.
Stress-test: Modest
In highly turbulent market conditions, MA is as volatile as an index. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low. At the same time, due to inherently volatile sector, its maximum losses could be limited.
Selling difficulty: Very low
MA boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.