Mastercard (MA) is home-free after the Federal Reserve gave banks a more generous limit than expected on what they can charge retailers.
Banks had been charging retailers an average of 44 cents on debit card charges, which was deemed to much by the Federal Reserve. The new rule puts a 21 cent cap on debit charges, above the 12 cents that was expected.
What was hurting credit issuer stocks like MasterCard and Visa (V) this year was if the max amount was set too low, the rates card issuers it charge banks would then get negotiated down too. Banks and credit unions argued 12 cents per transaction would not cover their costs. The new 21 cent max is a happy medium.
Cloud has Lifted
For MasterCard, the best thing about the new limit is it removes a big cloud over the stock. MA stock has great profit growth and a low P/E, but the stock was stuck in neutral because of regulatory concerns. Investors don’t like uncertainty. Below is a one-yearchart of MA as of this quarter (2011 Q2).
Yesterday’s news sent shares of MA up from $278 to $310. The stock broke out to a 52-week high on solid volume. Now MA is within $10 of its all-time high of $320 set in May 2008. Below is the ten-year view of the stock, as of this quarter (2011 Q2).
Disclosure: At the time of publication, clients of DavidSharek.com own shares of MA.
