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On Mar 6, we maintained our Neutral recommendation on MasterCard Inc. (MA - Analyst Report) based on its strong fundamentals that are poised to generate robust results once the global economic volatility stabilizes. However, intense competition and regulatory challenges mitigate the desired upside currently.

Why Kept Neutral?

Estimates for this electronic payment processor witnessed minor corrections since the company reported its fourth-quarter 2012 results on Jan 31. MasterCard’s fourth-quarter earnings per share of $4.86 topped the Zacks Consensus Estimate, although revenue was in line with the latter at $1.9 billion. Both earnings and revenue outpaced the year-ago results.

The upbeat results reflected better pricing, increased number of processed transactions, as well as strong gross dollar volumes (GDV) growth from an array of diversified and user-friendly products. Modest growth in operating expenses also supported the margins’ upside.

Moreover, MasterCard’s liquidity remains healthy with no long-term debt as well as an operating cash flow of $2.95 billion at the end of 2012 and an unused revolving credit facility worth $3.0 billion. Strong liquidity not only strengthens the operating leverage but paves the way for effective capital deployment to enhance long-term growth.

However, caution is raised over MasterCard’s resilience and ability to raise prices. Moreover, currency fluctuations, the detrimental effects of the regulatory changes, increased competition along with higher litigation and operating expenses will continue to moderate growth in the upcoming quarters.

Following the release of the fourth-quarter results, the Zacks Consensus Estimate for 2013 inched up 2 cents to $25.48 per share in the last 30 days. Conversely, the Zacks Consensus Estimate for 2014 edged down 2 cents to $30.02 per share in the last 30 days. With the Zacks Consensus Estimates for both 2013 and 2014 providing no clear directional pressure in the near term, MasterCard now has a Zacks Rank #3 (Hold).

Other Financial Stocks That Warrant a Look

While we see no clear directional pressure on MasterCard in the near term, other stocks in the financial sector that are outperforming include Moody’s Corp. (MCO - Analyst Report), Viad Corp. (VVI - Snapshot Report) and Vantiv Inc. (VNTV - Snapshot Report). All of these carry a Zacks Rank #1 (Strong Buy).

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