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Recently, we reiterated our recommendation on MasterCard Inc. (MA - Analyst Report) at Neutral based on its steady operating growth and financial sturdiness. However, intense competition and regulatory challenges simultaneously raise caution.

Why the Retention?

Estimates for MasterCard have remained steady since the company reported its second-quarter 2013 results on Jul 31. The company’s earnings per share of $6.96 and revenues of $2.1 billion exceeded the Zacks Consensus Estimate by 10.1% and 5%, respectively.

Moreover, both top and bottom line surpassed the year-ago results by 15.2% and 23.2%, respectively, based on the number of processed transactions, strong gross dollar value (GDV) growth and global purchase volumes.  Lower-than-expected expenses also drove the margins and cash flow.

Following the release of the second-quarter results, the Zacks Consensus Estimate for 2013 edged up 2.3% to $26.15 per share in the last 60 days. Additionally, the Zacks Consensus Estimate for 2014 inched up 2.5% to $30.81 a share. With the Zacks Consensus Estimate for both 2013 and 2014 showing slight upward pressure on the stock in the near term, the company now has a Zacks Rank #2 (Buy).

However, the Most Accurate Estimate for MasterCard’s 2013 earnings stands at $26.08 a share, resulting in a negative Earnings ESP of 0.3%.

While intense global competition coupled with increased regulatory compliances, litigations and currency fluctuations deter the desired upside in the stock, MasterCard’s growth is sustained by its consistent credit quality, diversified business mix, strong secular demand growth, meaningful international exposure  excellent pricing power and impressive operating leverage.

Strong alliances and acquisitions along with technological upgrades also bode well for long-term growth. Moreover, the 100% hike in dividends earlier this year and accelerated share buybacks reflect superior liquidity and a risk-free balance sheet, overall boosting investor confidence.

Other Financial Stocks That Warrant a Look

Along with MasterCard, other stocks in the financial sector that are outperforming include Official Payments Holdings Inc. , Visa Inc. (V - Analyst Report) and Total System Services Inc. (TSS - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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