Mastercard Incorporated (MA), a leader in payments processing, is slated to unveil its first-quarter (ended March 31, 2024) earnings result on May 1, 2024. In this piece, I have assessed the stock closely and discussed why investing in it now could be ideal.
Consumer spending in the United States shows consistent growth throughout the first quarter of 2024. In March, there was a notable increase of 0.8%, mirroring the same uptick seen in February. This positive momentum followed a modest rise of 0.1% in January 2024.
As consumer spending increases, there is typically a corresponding rise in transaction volumes for payment processors like MA. Additionally, increased consumer spending reflects a healthy economy, which can lead to higher consumer confidence and potentially more spending using MA's payment solutions.
As a result, for the fiscal first quarter, MA is projected to announce a substantial increase in both revenue and EPS compared to the previous year, with estimates suggesting a 10.4% rise to $6.34 billion and a 15.6% increase to $3.24, respectively. With a proven track record of outperforming consensus estimates in the last four quarters, the company demonstrates its consistent and reliable earnings performance.
MA’s stock has gained 26.8% over the past six months and 8.4% over the past year to close the last trading session at $462.42.
Here's what might sway MA's performance in the months ahead:
MA's Dual Innovations
MA recently introduced two groundbreaking initiatives to enhance consumer protection and financial management.
Scam Protect, launched on April 24, employs AI-driven solutions to combat rising scam threats and safeguard consumers from digital deception. Leveraging AI, biometrics, and strategic partnerships, MA is committed to detecting and preventing scams and fostering trust in the digital realm.
Additionally, MA's Smart Subscriptions, unveiled last month, revolutionizes subscription management within banking apps. Powered by open-banking technology, it offers spend analysis, categorization, and personalized offers, catering to consumer needs for convenience and control. With significant consumer interest and trust, Smart Subscriptions stands as a testament to MA's commitment to innovation and financial empowerment.
Robust Financials
During the fiscal fourth quarter that ended December 31, 2023, MA’s non-GAAP net revenue increased 12.6% year-over-year to $6.55 billion. Its non-GAAP operating income grew 15% from the year-ago value to $3.37 billion. The company’s adjusted net income and adjusted EPS of $2.99 billion and $3.18 indicate growth of 17.2% and 20% from the prior year’s quarter.
Further, the company’s total assets came in at $42.45 billion as of December 31, 2023, compared to total assets of $38.72 billion as of December 31, 2022.
Stable Dividend Policy
The company pays an annual dividend of $2.64, which yields 0.57% on the current market piece, higher than the four-year average yield of 0.52%. The company has consistently raised its dividend for 12 years. Moreover, its dividend payouts have grown at a CAGR of 16.2% over the past five years.
Encouraging Annual Forecasts
Analysts expect MA’s EPS and revenue to rise 17.4% and 11.9% year-over-year to $14.40 and $28.09 billion, respectively, in the fiscal year 2024.
For fiscal year 2025, MA’s revenue and EPS are likely to grow 12.6% and 16.4% year-over-year to $31.63 billion and $14.40, respectively.
High Profitability
MA’s trailing-12-month EBIT and EBITDA margins of 57.96% and 61.14% are 153.20% and 186.7% higher than the 22.89% and 21.33% industry averages. Its 44.27% trailing-12-month LFCF margin is 135.4% higher than the industry average of 18.81%. Furthermore, the stock’s 0.62x trailing-12-month asset turnover ratio is 186.8% higher than the industry average of 0.22x.
Solid Historical Growth
MA’s revenue has grown at a 17.9% CAGR over the past three years and a 10.9% CAGR over the past five years. Its EBITDA has grown at a 20.6% CAGR over the past three years. Its net income and levered FCF have grown at 20.4% and 21.7% CAGRs over the past three years.
POWR Ratings Show Promise
MA has an overall B rating, equating to a Buy in our proprietary 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. MA has an A grade for Quality, consistent with its high-profit margins. Its B grade for Sentiment is justified by its optimistic earnings estimates.
MA is ranked #4 out of 44 stocks in the B-rated Consumer Financial Services industry.
Click here to access MA’s Growth, Value, Momentum, and Sentiment ratings.
Bottom Line
MA's initiatives, Scam Protect and Smart Subscriptions underscore its dedication to consumer protection, financial empowerment, and technological advancement. As the landscape of financial services evolves, MA remains at the forefront, continuously innovating to meet the evolving needs of consumers and financial institutions alike.
In addition, fueled by strong consumer spending, expanding cross-border transactions, and a surge in processed transactions, MA is positioned to exceed earnings expectations for the first quarter of 2024.
Considering its robust fundamentals, impressive profitability, and consistent historical growth trajectory, investing in the stock could be a wise decision.
How Does Mastercard Incorporated (MA) Stack Up Against Its Peers?
While MA has an overall grade of B, equating to a Buy rating, you may also check out these other A (Strong Buy) and B (Buy)-rated stocks within the Consumer Financial Services industry: Qifu Technology, Inc. (QFIN), and Atlanticus Holdings Corporation (ATLC), EZCORP, Inc. (EZPW).
To explore more B-rated Consumer Financial Services stocks, click here.
What To Do Next?
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MA shares rose $1.58 (+0.34%) in premarket trading Monday. Year-to-date, MA has gained 9.11%, versus a 7.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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