Where Is Mastercard Stock Headed?

-4.22%
Downside
473
Market
453
Trefis
MA: Mastercard logo
MA
Mastercard

Mastercard’s stock (NYSE: MA) has gained approximately 14% YTD as compared to the 11% rise in the S&P500 index over the same period. Further, at its current price of $395 per share, it is trading 13% below its fair value of $453 – Trefis’ estimate for Mastercard’s valuation

Interestingly, Mastercard stock had a Sharpe Ratio of 0.9 since early 2017, which is higher than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.24 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

The company outperformed the consensus estimates in the second quarter of 2023. It reported a 14% increase in the net revenues to $6.3 billion driven by a 12% rise in the gross-dollar volume (GDV), a 24% jump in the cross-border volume, and a 17% growth in the number of switched transactions. Further, the operating expenses as a % of revenues witnessed a favorable drop, benefiting the bottom line. Overall, the net income improved 25% y-o-y to $2.8 billion.

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The company’s top line grew 13% y-o-y to $12 billion in the first half of FY 2023. It was because of strong growth in each of the key metrics – GDV, cross-border volume, and number of switched transactions. In addition, lower operating expenses as a % of revenues also helped the bottom line. However, the positive effect was partially offset by higher effective income tax. Altogether, the net income increased 6% y-o-y to $5.2 billion.

Moving forward, we expect the third quarter results to be on similar lines. All in all, Mastercard’s revenues are estimated to touch $25.27 billion in FY2023. Additionally, MA’s adjusted net income margin is expected to improve in the year, leading to a net income of $13.9 billion. This coupled with an annual EPS of $14.58 and a P/E multiple of just above 31x will lead to a valuation of $453.

 Returns Sep 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 MA Return -4% 14% 296%
 S&P 500 Return -5% 11% 91%
 Trefis Reinforced Value Portfolio -7% 23% 531%

[1] Month-to-date and year-to-date as of 9/28/2023
[2] Cumulative total returns since the end of 2016

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