Is Mastercard Stock Fairly Priced?

+2.31%
Upside
460
Market
471
Trefis
MA: Mastercard logo
MA
Mastercard

Mastercard’s stock (NYSE: MA) has lost roughly 18% YTD as compared to the 24% drop in the S&P500 index over the same period. Further, at its current price of $292 per share, it is trading 29% below its fair value of $413 – Trefis’ estimate for Mastercard’s valuationThe company, a leading global payments solutions provider, posted better-than-expected results in the second quarter of 2022. Its net revenues (revenue minus rebates & incentives) increased 21% y-o-y to $5.5 billion. While all the revenue streams witnessed growth in the quarter, the top line primarily benefited from a 50% jump in cross-border volume fees and a 17% rise in transaction processing revenues. Further, the gross dollar volume improved by 14% y-o-y, followed by a 58% growth in the cross-dollar volume and a 12% increase in the number of switched transactions. Overall, the firm reported a 10% y-o-y increase in the net income to $2.3 billion. The positive effect of growth in the top line was somewhat offset by a decrease in total other income from $137 million to -$220 million. 

The total revenues grew 23% y-o-y to $10.7 billion in the first half of 2022. It was driven by a 50% growth in cross-border volume fees, 20% in transaction processing, 15% in domestic assessments, and 18% in other revenues. The top line benefited from the easing of international travel restrictions and recovery in consumer spending levels. All in all, the net income increased 26% y-o-y to $4.9 billion.

Moving forward, we expect the third-quarter revenues to increase on a year-on-year basis. Notably, the consensus estimates for Q3 revenues and earnings are $5.66 billion and $2.57, respectively. Further, Mastercard’s revenues are estimated to touch $22.2 billion in FY2022. Additionally, MA’s adjusted net income margin is expected to remain around the same level as the previous year, leading to a net income of $10.15 billion. This coupled with an annual EPS of $10.57 and a P/E multiple of just above 39x will lead to a valuation of $413.

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 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MA Return 3% -18% 192%
 S&P 500 Return 1% -24% 61%
 Trefis Multi-Strategy Portfolio 1% -26% 195%
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[1] Month-to-date and year-to-date as of 10/11/2022
[2] Cumulative total returns since the end of 2016

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