A booming U.S. economy, low unemployment, wage gains, increase in retail spending paints a perfect growth-boosting picture for Mastercard Inc. (MA - Free Report) . Apart from a strong macro economy, the shift in payment habits from cash and checks to the usage of electronic channel and cards have greatly benefitted this stock.
Following a solid first-quarter 2018, the company lifted its earnings guidance on the back of a flourishing U.S economy. It now expects year-over-year revenue growth in the high teens percentage, up from its previous expectations of mid-teens percentage.
The company has performed extremely well for past several years with potential to carry on the momentum in the near future as well.
Year to date, the stock has surged 33% compared with the industry’s rally of 18.8%.
Why an Attractive Pick?
Solid Rank & Growth Score: Mastercard sports a Zacks Rank #1 (Strong Buy) and has a favorable Growth Score of B. Our research shows that stocks with an impressive Growth Score of A or B when combined with a bullish Zacks Rank of 1 or 2 offer solid growth opportunities. Thus, the company appears to be a compelling investment proposition at the moment.
Northward Estimate Revisions: For the current year, 16 estimates have moved north over the past 60 days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for 2018 bottom line has been revised 5% upward to $6.31. Also, for 2019 earnings, the consensus mark has been raised 4% to $7.28.
Strong Earnings Growth Prospects: The company’s Zacks Consensus Estimate of $6.31 for 2018 earnings reflects a year-over-year surge of 37.8%. Moreover, the metric is projected to register 15.4% increase in 2019.
Growth Drivers: A series of acquisitions made by the company in recent years should complement its organic growth.
The company’s revenues witnessed an impressive CAGR of 11% during the 2012-2017 period. The same was up 31% in the first quarter. We believe that the company should retain its revenue momentum in the coming quarters, riding high on its strong market position and a profitable core business, which continues to be driven by new deals, renewed agreements and an expansion of service offerings.
International markets (Asia-Pacific, Canada, Europe, Latin America, Africa and the Middle East) provide both growth and diversification benefits to Mastercard. These markets have potential to generate growth over the coming years, led by a shift toward card usage and higher consumer spending. Moreover, these markets remain less penetrated than U.S. markets.
The company’s strong international business has led to an increase in cross-border volume growth for the past several quarters (21% in the first quarter of 2018, 13% in 2017, 12% in 2016) and we expect this trend to continue in the going ahead .
The company’s consistent investment in technology also positions it well in a rapidly shifting payments space. It includes investment in Artificial intelligence, blockchain, tokenization, biometrics and much more.
Strong Balance Sheet: Mastercard boasts a strong balance sheet with financial flexibility and a continuous cashflow from operating activities. Its disciplined capital management strategy by way of share buyback and dividend payments remains impressive. We believe the company will continue to generate favorable cash from operations owing to its expandingbusiness volumes. Its robust capital position enables it to pursue acquisitions, which have already ramped up its inorganic growth profile.
Strong and Growing ROE: Mastercard’s trailing 12-month return on equity (ROE) of 92% remains significantly higher than the industry’s 39% average. This, is turn, reinforces its growth potential. The figure also reflects the company’s tactical efficiency in using shareholders’ funds. Moreover, the company’s ROE has grown steadily over a period of five years.
Other Stocks to Consider
Other stocks worth considering from the space include WEX Inc. (WEX - Free Report) , Evertec, Inc. (EVTC - Free Report) and Total System Services Inc. (TSS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
WEX Inc. beat estimates in each of the last four reported quarters with an average positive surprise of 2.56%.
Evertec bettered estimates in three of the last four quarters with an average beat of 12.48%.
Total System surpassed estimates in each of the trailing four quarters with an average earnings surprise of 8.54%.
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