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You Wouldn’t Guess This Stock Could Go To $400

Stock (Symbol) Stock Price

MasterCard (MA)

$249

Data is as of Expected to Report Sector

March 15, 2011

May 2

Financial

Sharek’s Take
David SharekAlthough Mastercard (MA) isn’t getting many headlines right now, the stock could be one of the markets best bets during the next two years. MasterCard had been pressured from the United States and Canadian governments over fees the company charges. The bottom line is MasterCard management stated it expects profits (EPS) to grow greater than 20% a year through 2013.
 
At 15 times earnings, the stock is undervalued and the combination of a low P/E and solid expected profit growth should gives investors attractive potential. This is one of the top large-cap and financial stocks to own.
One-Year Chart
MA’s one-year chart shows a stock going nowhere. This large company seems to have slipped below the radar.
 
The biggest plus in the one-year view is the expected Long Term Growth Rate of 20% and a P/E of only 15. A 20 P/E today would take the stock from $249 to $333, 34% higher. This higher P/E might not happen this year, making MA a longer term investment.
Earnings Table
Profits rose 41% last quarter as revenue growth accelerated to 11% from 5% the quarter before. Mastercard has fluctuating profit growth rates each quarter. Last quarter I stated “Management thinks International revenue should grow at greater than 10% a year during 2011-2013.” 
 
MasterCard beat estimates by 13 cents last quarter, but some air likely was removed from the stock’s momentum because it beat by a whopping 40 cents the quarter before.
 
Annual profit estimates are about what they were last quarter. 2013 estimates are $22.53. A 15 P/E on that figure gets a stock price of $338 — a gain of 36% in two years. I think that’s a conservative estimate on what to expect from MA stock.
 
Quarterly estimates look very strong even four quarters from now. Also quarterly estimates are increasing, they had been decreasing for the past year.
Fair Value
As you can see in the Fair Value table I think this stock is worth 20 times earnings and that gives MA attractive upside. Amazing this stock isn’t more touted.
Ten-Year Chart
MA went public in 2006 and tore it up as crushed earnings estimates. I was hoping for a return to whipping the street, but that didn’t happen this quarter. The stock will encounter resistance around the $260-$270 level. With MA around $250 now its close to breaking out.
Power Ranking Bottom Line
Growth Portfolio

12 of 22

Mastercard has solid upside for growth investors who aren’t looking to take chances. MA is ranked 12th in the 22 stock Growth Portfolio Power Rankings.
 
MAis ranked 6th in the 10 stock Aggressive Growth Portfolio Power Rankings. This stock isn’t moving now but the upside potential of close to $400 within a year or two makes me keep this semi-conservative stock in this more-aggressive portfolio.
Aggressive Growth Portfolio

8 of 10

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