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Mastercard a Solid Buy After Posting Stellar Q4 Earnings

Zacks Equity Research

On Jan 29, Mastercard Incorporated MA reported fourth-quarter 2019 earnings of $1.96 per share, which surpassed the Zacks Consensus Estimate by 4.81%. Also, earnings soared 26% year over year from $1.55 per share reported in the same quarter last year.

Higher switched transactions, increase in cross-border volume and gross dollar volume, and gains from acquisitions helped Mastercard notch better-than-expected earnings results. Moreover, the positives helped to offset the losses incurred from an increase in rebates and incentives year over year.

Additionally, Mastercard’s fourth-quarter revenues of $4.4 billion came in line with the Zacks Consensus Estimate and grew 16% year over year. For 2019, the company’s earnings per share rose 20% year over year to $7.77 and revenues grew 13% to $16.9 billion.

Catalysts Behind Mastercard’s Upbeat Results

Mastercard has been consistent in earnings growth and this has in turn helped its stock rise to a premium value. In fact, the credit card and payment giant has crossed Walmart Inc. WMT, becoming the tenth-largest U.S. company by market value.

In the fourth quarter, revenues were driven by acquisitions, cyber and intelligence, and data and services solutions and cross border transactions. Specifically, acquisitions boosted revenues by 1 percentage point.

Further, as of Dec 31, Mastercard’s customers had issued 2.6 billion Mastercard and Maestro-branded cards. This was aided by stable growth in the U.S. economy due to a low unemployment rate and confident American consumers. Mastercard’s SpendingPulse estimates for the fourth quarter show that retail sales remained solid, up 3.1% year over year (excluding auto and gas).

Mastercard Outlook

As part of the earnings call, the company also presented an outlook for 2020. Mastercard expects net revenues to rise and operating expenses to decline by single-digits. The company predicts effective tax rate in the range of 17-18% for 2020.

Mastercard predicted first-quarter net revenues to reach the double-digit range and operating expenses in the low and mid-teen range. In fact, Mastercard’s solid market position, digital initiatives and ongoing expansion through acquisitions will help in revenue growth. Additionally, if U.S. consumer confidence remains healthy through 2020 and the economy continues to expand, the uptrend should continue. What gives this company an edge over the others is its shift toward electronic payment and plans to incorporate and adapt contactless payment.

Mastercard Endorses Contactless for 2020

With the click-to-pay trend fast pulling up, Mastercard is not far in its digital initiatives and making real progress on the contactless front. In the fourth quarter of 2019, Mastercard reported that contactless payment made up over 30% of purchases made through global card.

This frictionless and fast payment is being rapidly adopted by consumers and has surpassed 5 million taps since the launch in May. In fact, once the contactless acceptance is rolled out systemwide by the end of 2020, this will boost Mastercard’s growth higher.

Along with that, the Mastercard Send platform allows real-time personal payments. The platform supports transactions and links users to banks, businesses and digital wallets to deliver money to bank accounts, prepaid debit cards, mobile wallets and select cashout locations.

In fact, Bank of America Corporation BAC has agreed to use Mastercard Send for its consumer card disbursements in the United States. At the same time, the bank wants to expand the use of Mastercard Send to power instant insurance claim payouts in all the states. PayPal Holdings, Inc. PYPL will also be utilizing Mastercard Send in 10 new markets in the Asia Pacific region to help users transfer funds from their Paypal wallets to eligible bank accounts.

What’s more? Mastercard recently approved biometric payment card developed by Thales Group with a Fingerprint Cards sensor as the first contactless fingerprint payment card in its digitization program. As per Thales Group, the card can make successful verification and has very low False Acceptance and False Rejection Rates. Additionally, the card has high speed and distance performance during transactions.

All these positives will certainly help the Zacks Rank #2 (Buy) company gain traction. Investors should be smart enough to tap these winning trends and make money out of Mastercard’s bright prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.

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