World’s leading payment processing and network company, Mastercard Incorporated MA, exited 2019 with superior operating results, a trend which has been continuing over the years.
Mastercard, with its unbeatable business model and a niche presence in the rapidly growing payments industry, is uniquely poised for long-term growth, given its global presence, high end technological platform, broad service offerings, ubiquitous brand name and a solid balance sheet among others.
After reporting solid fourth-quarter 2019 results on Jan 29, 2020, which included increase in gross dollar volume, cross-border volume and switched transactions by 13%, 16% and 19%, respectively, shares of the company have gained 5% to date, compared with the industry’s growth of 2%. Gross dollar value shows the aggregated dollar amount of purchases made and cash disbursements obtained with MasterCard-branded cards, and cross-border volumes reflect payments processed through its global clearing management system. Switched transactions signify the number of times the company’s products were used to facilitate transactions.
For Mastercard, 2019 was another solid year as it continued to benefit from global growth in electronic payments. Revenues and EPS in 2019 grew 16% and 23%, respectively.
Mastercard is well positioned to benefit from the ongoing global trend of consumers paying with plastic and digital devices instead of cash and check. The company is also expanding in digital, realtime payments (ACH) and emerging markets.
The company’s 2020 business environment looks good with low unemployment and healthy consumer confidence in the United States. However, a number of economic and geopolitical factors as well as the potential effects of corona virus outbreak may impact its performance temporarily..
Mastercard’s agreements with Citibank, Capital One, payUS, Standard Bank Group in South Africa, MoneyLine, Vistara Airlines in India, Norwegian Cruise Line in the United States, China Construction Bank, HDFC Bank and State Bank of India bode well for transaction processing growth via its network
Also, the stock hit a 52-week high of $337.83 on Feb 13, before closing at $335.84. Mastercard received approval from the People’s Bank of China (PBOC) to begin formal preparations to set up a domestic bankcard clearing institution in China. The news of this approval is likely to have driven the shares higher. With this clearance, within one year, Mastercard will be able to apply to the People's Bank of China for formal approval to begin domestic bankcard clearing activity.
This development opens a huge opportunity for Mastercard to expand in the Chinese payments market, which is worth $27 trillion. Other companies in the same space such as American Express Co. AXP and PayPal Holdings, Inc. PYPL have also forayed into the Chinese payments market.
Mastercard carries a Zacks Rank #3 (Hold). The company’s earnings for 2020 are expected to grow by 15.83%, which is higher than the industry’s average of 13.7%. The company is trading at its peak valuation with forward 12-month price-to-earnings ratio of 36.5, compared with the industry average of 28.9. This premium is driven by the numerous tailwinds enjoyed by the company.
A better-ranked stock in the same space is Envestnet, Inc. ENV. The stock carries a Zacks Rank #2 (Buy). It surpassed estimate in the last reported quarter by 3.45%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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