Despite jumping 35% from the low of $203 on March 23 to reach its current level of around $270, we believe Mastercard’s stock (NYSE: MA) still has some upside potential. Our belief can be attributed to the fact that the payment giant’s stock is currently 10% below the level of $294 seen in Jan 2020. Our dashboard Why Mastercard Stock moved 166.3% provides the key numbers behind our thinking, and we explain more below.
Mastercard’s stock has gained a whopping 166% in the last three years, and a key factor behind this gain is the roughly 57% growth in Mastercard’s revenues between 2016 to 2019, which coupled with improving margins translated into an almost 100% growth in Net Income. However, earnings per share grew at a higher rate of 116%, driven by share buybacks. Specifically, the company has invested about $15 billion in repurchases in the last three years, resulting in about 7.4% lower outstanding shares. While Mastercard did have about $11.3 billion in cash as of the last report, we believe it will likely be challenging for the company to sustain the same level of buybacks
Finally, Mastercard’s P/E ratio grew from about 27.3x at the end of 2016 to over 37.3 at the end of 2019. While Mastercard’s P/E is down to about 33.7 now, given the volatility of the current situation, there is an additional possible upside for Mastercard’s multiple when compared to levels seen in the past years – P/E of 37.3x at the end of 2019, and 40.7x as recent as in late 2017.
How Is Coronavirus Impacting Mastercard’s Stock?
Mastercard is a payment processing giant that derives around 22% of its revenues from International Fees and 34% of its revenues from transaction processing fees. With travel bans and lockdowns in place due to the Coronavirus outbreak, International Fees are expected to take a sizable hit. Further, lower consumer spending would result in lower transaction volume leading to lower transaction processing fees. While the company’s result for the Q1 2020 saw some increase in revenues, we believe Mastercard’s Q2 results will confirm the hit to its revenue. It is also likely to accompany a lower Q3 as-well-as 2020 guidance.
In the current scenario, we believe Mastercard’s stock is likely to remain around its current levels, with limited upside potential post coronavirus. However, if there are signs of abatement of the crisis by the time Q2 results are announced, the company’s stock could see a meaningful uptick.
Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the Coronavirus outbreak’s impact on a diverse set of Mastercard’s peers. The complete set of coronavirus impact and timing analyses is available here.
Notably, Mastercard has significantly outperformed its peer American Express since the beginning of 2020. We detail the reason behind the sharper movement in American Express’ stock in a separate interactive dashboard.