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Analyst Blog

Yesterday, MasterCard Inc. (MA - Analyst Report) announced a long-term agreement with KeyBank, a bank-based financial services company, so as to provide debit card, ATM and prepaid card payment processing services.

Consequently, KeyBank will use MasterCard’s Integrated Processing Solutions (IPS) for payment processing under its Debit MasterCard program. The company will use the service for online, ATM as well as in-store transactions by its clients. Additionally, KeyBank will now be able to provide PIN transactions to its debit card users along with the current signature purchases and ATM transactions.

MasterCard’s IPS is a top-notch, highly secure payment solution, which will provide KeyBank with the flexibility to create innovative and specialized products and services to meet its clientele’s needs. KeyBank has been using MasterCard’s payment solutions since 1997. It offers various MasterCard-branded cards, such as Rewards Debit MasterCard, KeyBank Gold Debit MasterCard and World Debit MasterCard.

Recently, MasterCard has been implementing IPS across its card portfolio in order to eliminate the inefficiencies, which are inherent in disparate processing platforms. During the third quarter of 2011, MasterCard announced that the U.S. Huntington Bank will convert its MasterCard debit cards and implement the company’s IPS platform.

Earnings Review

MasterCard’s third-quarter 2011 operating earnings of $5.63 per share came in significantly ahead of the Zacks Consensus Estimate of $4.81 and $3.94 per share earned in the year-ago quarter. Moreover, net income for the reported quarter stood at $717 million, spiking 38.4% from $518 million in the prior-year quarter.

The Zacks Consensus Estimate for MasterCard’s fourth-quarter 2011 earnings is pegged at $3.90 per share, representing an annualized growth of 23% over the prior-year period. Ten out of 27 analysts reduced their earnings estimates in the past 30 days, while only one upward revision was witnessed.

For 2011, the company’s earnings are expected to be $18.57 per share, growing about 32% from 2010. Additionally, MasterCard’s 2012 earnings are expected to be about $21.50 per share, up16% year over year.

MasterCard is slated to release its financial results for both the fourth quarter and full year 2011 before the market opens on February 2, 2012. The company competes with Visa Inc. (V - Analyst Report), American Express Co. (AXP - Analyst Report) and Discover Financial Services (DFS - Analyst Report).

Currently, the shares of MasterCard have a Zacks #3 Rank, implying a short-term Hold rating. Furthermore, based on the fundamentals we maintain our long-term Neutral recommendation on the stock.

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