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Mastercard Up Nearly 30% Year to Date, Will the Rally Last?
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A strong U.S. economy, low unemployment and wage gains have fueled a rise in retail spending and in turn placed Mastercard Inc. (MA - Free Report) in a bright spot. A strong macroeconomic backdrop coupled with the company’s strong fundamentals and a rapid shift in the usage of cards for payments have greatly benefited the stock of this company.
Year to date, the stock has gained 29.7% compared with the industry’s growth of 16%. This performance looks all the more attractive compared with the gains of 15% for Visa Inc. (V - Free Report) and a decline of 1.5% in American Express Inc. (AXP - Free Report) . Both these players share the same space as Mastercard.
We can get an insight into Mastercard’s superior performance from its earnings surprise history of a beat in 25 out of 27 quarters. For the second quarter, the Zacks Consensus Estimate of $1.54 per share implies 40% year-over-year growth.
What’s the Catalyst Behind This Growth
Increasing Revenues: The company’s net revenues grew 27% on a constant currency basis, upholding the top-line growth of the past many years. The company has witnessed a revenue CAGR of 11% from 2012-2017. This growth has been achieved on the back of new deals, renewed agreements, technological investments, acquisitions and widening of geographic footprint. An increase in the number of transactions processed from an increase in spending due to high consumer confidence amid a strong economy has also aided top-line growth.
Growth of its Value Added Services: Continuous diversification of its business beyond core payments has fared well for the company. Its services business now represents 25% of total revenues, which differentiates it from the market. These services are in the areas of Analytics, Fraud and Loyalty, and B2B offerings, which can help it maintain above-average long-term organic revenue growth. Moreover, it has a diversified customer profile that includes merchants, governments, telecommunications companies and digital players.
Digital Innovations: Numerous trends in the digital market, such as demand for faster payments and the application of emerging technology, present opportunities for growth. To this end, the company has launched and extended products and platforms that take advantage of the growing digital economy. Some of recent developments in 2017 are expansion of the use of Masterpass, Mastercard Send and Quick Response codes. The company’s digital innovations keep it ahead in the race in a fast-changing payments’ industry.
Expansion in the Business-to-Business (B2B) Market: The company’s market share in commercial products is growing globally, as its offers solutions with travel and entertainment, procurement, fleet and virtual cards. The company estimates that there is $120 trillion in addressable payment flows in B2B globally, of which approximately $100 trillion is related to cash and checks, giving the company immense opportunity.
To address this opportunity, the company is expanding its capabilities to capture non-carded payment flows with new solutions, such as the Mastercard B2B Hub, Mastercard Send for cross-border payments, and real-time account-based payment systems for ACH transactions. The company launched the innovative Mastercard B2B Hub platform in 2017 to enable small and midsized businesses to optimize their invoice and payment processes with automation tools that improve the speed, ease and security of their commercial payments. The company’s B2B offering should lead to long-term growth.
Enhanced Safety and Security: The company has also been making huge investments in enhancing the safety and security of the transactions made on its network from cyber crime. To this end, in 2017, it acquired Brighterion and NuData Security, launched Early Detection System, expanded Safety Net, expanded AI across its network with Decision Intelligence.
These fundamental strengths of the company have favored the stock and there seems to be no end here since investments in different platforms, acquisitions and deals would lead to business growth.
Mastercard carries a Zacks Rank #2 (Buy). Another stock worth considering is WEX Inc. (WEX - Free Report) , which carries the same Zacks Rank as Mastercard. It beat earnings estimates in each of the four reported quarters, with an average positive surprise of 2.6%.
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Image: Bigstock
Mastercard Up Nearly 30% Year to Date, Will the Rally Last?
A strong U.S. economy, low unemployment and wage gains have fueled a rise in retail spending and in turn placed Mastercard Inc. (MA - Free Report) in a bright spot. A strong macroeconomic backdrop coupled with the company’s strong fundamentals and a rapid shift in the usage of cards for payments have greatly benefited the stock of this company.
Year to date, the stock has gained 29.7% compared with the industry’s growth of 16%. This performance looks all the more attractive compared with the gains of 15% for Visa Inc. (V - Free Report) and a decline of 1.5% in American Express Inc. (AXP - Free Report) . Both these players share the same space as Mastercard.
We can get an insight into Mastercard’s superior performance from its earnings surprise history of a beat in 25 out of 27 quarters. For the second quarter, the Zacks Consensus Estimate of $1.54 per share implies 40% year-over-year growth.
What’s the Catalyst Behind This Growth
Increasing Revenues: The company’s net revenues grew 27% on a constant currency basis, upholding the top-line growth of the past many years. The company has witnessed a revenue CAGR of 11% from 2012-2017. This growth has been achieved on the back of new deals, renewed agreements, technological investments, acquisitions and widening of geographic footprint. An increase in the number of transactions processed from an increase in spending due to high consumer confidence amid a strong economy has also aided top-line growth.
Growth of its Value Added Services: Continuous diversification of its business beyond core payments has fared well for the company. Its services business now represents 25% of total revenues, which differentiates it from the market. These services are in the areas of Analytics, Fraud and Loyalty, and B2B offerings, which can help it maintain above-average long-term organic revenue growth. Moreover, it has a diversified customer profile that includes merchants, governments, telecommunications companies and digital players.
Digital Innovations: Numerous trends in the digital market, such as demand for faster payments and the application of emerging technology, present opportunities for growth. To this end, the company has launched and extended products and platforms that take advantage of the growing digital economy. Some of recent developments in 2017 are expansion of the use of Masterpass, Mastercard Send and Quick Response codes. The company’s digital innovations keep it ahead in the race in a fast-changing payments’ industry.
Expansion in the Business-to-Business (B2B) Market: The company’s market share in commercial products is growing globally, as its offers solutions with travel and entertainment, procurement, fleet and virtual cards. The company estimates that there is $120 trillion in addressable payment flows in B2B globally, of which approximately $100 trillion is related to cash and checks, giving the company immense opportunity.
To address this opportunity, the company is expanding its capabilities to capture non-carded payment flows with new solutions, such as the Mastercard B2B Hub, Mastercard Send for cross-border payments, and real-time account-based payment systems for ACH transactions. The company launched the innovative Mastercard B2B Hub platform in 2017 to enable small and midsized businesses to optimize their invoice and payment processes with automation tools that improve the speed, ease and security of their commercial payments. The company’s B2B offering should lead to long-term growth.
Enhanced Safety and Security: The company has also been making huge investments in enhancing the safety and security of the transactions made on its network from cyber crime. To this end, in 2017, it acquired Brighterion and NuData Security, launched Early Detection System, expanded Safety Net, expanded AI across its network with Decision Intelligence.
These fundamental strengths of the company have favored the stock and there seems to be no end here since investments in different platforms, acquisitions and deals would lead to business growth.
Mastercard carries a Zacks Rank #2 (Buy). Another stock worth considering is WEX Inc. (WEX - Free Report) , which carries the same Zacks Rank as Mastercard. It beat earnings estimates in each of the four reported quarters, with an average positive surprise of 2.6%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>