HomeMost PopularInvesting Assessing Mastercard's (MA) Growth Potential: Stick or Twist?

Assessing Mastercard’s (MA) Growth Potential: Stick or Twist?

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The Growth Trajectory Mastercard Incorporated, or MA, is poised for expansion, driven by robust consumer spending, an extended suite of services, rising cross-border and overall transaction volumes. Over the past year, the stock has surged by 19.1%, outshining the industry’s 18.5% growth. The bullish momentum seems set to continue.

Mastercard, with a staggering market cap of $395.6 billion, stands as a premier global payment solutions provider, offering a wide spectrum of services including credit, debit, mobile, web-based, and contactless payments, as well as various electronic payment programs to financial institutions and other entities. At present, this Zacks Rank #3 (Hold) stock appears to be a prudent bet.

Reading the Tea Leaves

Exploring further, the Zacks Consensus Estimate for Mastercard’s 2023 full-year earnings is locked in at $12.16 per share, reflecting a solid 14.2% uptick from the year-ago reported figure. This estimate has held steady over the past week. As for 2024, the projection stands at $14.17 per share. MA has consistently surpassed earnings estimates over the last four quarters, with an average surprise of 3.6%. The resilience is visually depicted in the graph below.

Price and EPS Surprise

Mastercard Incorporated Price and EPS Surprise

Mastercard Incorporated price-eps-surprise | Mastercard Incorporated Quote

Moreover, the consensus estimate for revenues is pinned at $25 billion for 2023, signaling a 12.4% surge from the year-ago reported figure. The same for 2024 stands at $28.1 billion. The heightened Cross-Border Assessments and Transaction Processing Assessments are poised to prop up the top-line growth.

Our forecast for Cross-Border Assessments indicates a robust year-over-year surge of over 27%. Similarly, the expectation is for Transaction Processing Assessments to leap by 13.7% from the year-ago reported level. With escalating transactions, GDV, shrewd growth tactics, and strategic partnerships in play, MA’s performance is anticipated to get a substantial shot in the arm. Furthermore, our models predict a hike of over 10% in Domestic Assessments year over year.

Strategic Maneuvers

Mastercard’s strategic focus on expanding operations in burgeoning regions positions it favorably for sustained long-term expansion. Its pivotal alliances and partnerships have been pivotal in this regard. Some noteworthy partnerships of late include ventures with Further Ventures, I&M Bank Uganda, First Atlantic Commerce, Bidvest Bank, and several others.

The company leverages acquisitions to complement organic initiatives and broaden its revenue base. This paves the way for expanding its addressable market size, driving new revenue streams, and bolstering core product solutions, thereby keeping it ahead in the fiercely competitive payments landscape.

Over the years, the company has consistently generated cash flow from operations, enabling it to carry out share buybacks and dividends. In the first nine months of 2023 alone, it raked in $7.9 billion in cash flows from operations. During the third quarter, it repurchased 4.8 million shares for $1.9 billion and paid out dividends worth $538 million. Last month, it sanctioned a 16% increase in its quarterly cash dividend and earmarked an additional $11 billion for its share buyback fund.

Considerations

However, investors should keep a keen eye on a few factors. For instance, escalating expenses and high rebates and incentives are likely to exert pressure on MA’s margins. Adjusted operating expenses are projected to ascend by 10.5% year over year for full-year 2023. Furthermore, the model forecasts rebates and incentives to swell by almost 22% year over year for 2023.

Trading at a forward 12-month price-to-earnings multiple of 34.4X, MA’s valuation is significantly higher than the industry average of 23.4X, implying an overvalued scenario. Nonetheless, a methodical and strategic course of action is expected to drive its long-term growth.

Stocks to Watch

Some promising stocks in the broader Business Services sector are RB Global, Inc. RBA, Repay Holdings Corporation RPAY, and MoneyLion Inc. ML, each currently holding a Zacks Rank #2 (Buy). They deserve a closer look.

For RB Global, the consensus estimate for its 2023 full-year bottom line suggests a solid 15.4% year-over-year growth. It has witnessed one upward estimate revision in the past 30 days vis-Γ -vis none in the opposite direction. RBA bested earnings estimates in each of the past four quarters, with an average surprise of 18.9%.

For Repay Holdings, the consensus estimate for its 2023 full-year bottom line is pegged at 81 cents, without any estimate revisions in the past week. The consensus mark for full-year revenues indicates a 4.3% year-over-year expansion. RPAY beat earnings estimates in two of the past four quarters and fell short twice, with an average surprise of 0.2%.

As for MoneyLion, the consensus estimate for its 2023 full-year earnings signals an impressive 58.4% year-over-year improvement. It has witnessed one upward estimate revision in the past 60 days against none in the opposite direction. The consensus mark for ML’s full-year revenues indicates a robust 24.4% year-over-year increase.

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Mastercard Incorporated (MA) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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