| Stock (Symbol) |
Stock Price |
MasterCard (MA)
|
$217
|
| Data is as of |
Expected to Report |
Sector |
September 21, 2010
|
Nov 1
|
Financial
|
| Company Description |
|
MasterCard Incorporated (MasterCard) is a payment solutions company that provides a variety of services in support of the credit, debit and related payment programs of approximately 23,000 financial institutions and other entities that are its customers. Through its three-tiered business model as franchisor, processor and advisor, the Company develops and markets payment solutions, process payment transactions, and provides support services to its customers and, depending upon the service, to merchants and other clients. MasterCard manages a family of payment card brands, including MasterCard, MasterCard Electronic, Maestro and Cirrus, which the Company licenses to its customers. In December 2008, MasterCard acquired Orbiscom Ltd.
|
| Sharek’s Take |
 I’m looking at MasterCard with a long-term view this quarter. In May the Senate voted to limit credit and debit card fees banks charge customers (people). This indirectly affects MasterCard and Visa (V) because the less cards that are swiped the less fees MA and V get to make off each transaction. The financial impact of the new legislation is something I don’t know.What I do know is MasterCard management recently stated it expects profits (EPS) to grow greater than 20% a year through 2013. That’s three years. In the world of stock investing, three to five years is considered long-term. So in a nut-shell, MA is a 20% grower selling for 16 times earnings. |
| One-Year Chart |
| MA (and V for that matter) has been stuck in an ugly looking base. The “20% long-term growth news” did pop the stock but not enough to break it out. Profits look to average 20% during the next two quarters.The thing that I really like is the estimates Long Term Growth Rate of 20% compared to the P/E of 16. This stock looks solid and undervalued. This stock is very close to breaking out — a high volume move higher would be great! |
 |
| Profit Growth |
Earnings Table |
| Profits grew 25% last quarter on only 7% higher sales. I think the key to the 20% long-term growth is MA can grow profits fast when revenues grow slow. International growth should be above 10% during 2011-2013 (they claim). |
 |
| Beat the Street |
| MA beat the street by 15 cents last quarter, which was good but the stock has a short-term history of maybe beating, maybe not. |
| Annual Profit Estimates |
| Annual estimates came down a little, which is expected. I still like the $13.50 for this year, $16 next and $19 for the year after. That’s better than a lot of companies. |
| Future Quarters |
| Quarterly estimates show a trend of declines. I can see why MA is down-and-can’t-break-out. Profit growth looks to average 21% but the figures are all over the place. |
| Fair Value |
| MA is really worth 23 times earnings. I mean this company makes money when people use credit cards — that’s not going away. But with Estimates declining, all I can do is a P/E of 20 for now. This stock is not timely, and a P/E of 23 would make the fair value $313 — almost $100 more than the current price. No way. Not now. |
| Year |
Profits |
x |
P/E |
= |
Price |
Upside/Downside |
| Today |
13.59 |
x |
16 |
= |
217 |
|
| 2010 Fair Value |
13.59 |
x |
20 |
= |
272 |
25% |
| 2011 Fair Value |
16.15 |
x |
20 |
= |
323 |
49% |
|
| Ten-Year Chart |
| MasterCard was a fabulous stock after it went public in May 2006. The key to the move higher was the company kept blowing away earnings estimates and guiding higher — the analysts could never keep up. I mean, analysts were low-balling how much MA could make.Then when the analysts set high targets and MA couldn’t deliver during the 2008 recession, the stock fell.Looking at the Fair Value, I think MA will hit its all-time high next year. |
 |
| Power Ranking |
Bottom Line |
Growth Portfolio
10 of 17
|
I’m taking a long-term view of this stock. I do believe the company can grow at 20% a year for the next three-to-five years. I also like the consistency a credit card company provides — they make revenue every day, no matter what. A stock like that is worth at least 20 times earnings, and that gives MasterCard 25%-50% upside this year and next. This is the 10th best stock in the seventeen stock Growth Portfolio. MA is not in my Aggressive Growth Portfolio, and I won’t look to add it there until estimates start increasing. MasterCard is not timely right now. |
Aggressive Growth Portfolio
N/A
|
