Payment processor Mastercard Inc. (MA - Free Report) has been an investors’ favorite, given the company ‘s leadership position in the payments space, by virtue of its huge network which processes millions of transactions everyday across the globe, enabling it to earn huge processing fees.
The company’s continued investments in technology have kept it ahead of the rapidly changing payments industry which has traversed all the way from credit and debit cards forms of payments to digital, contactless etc.
Mastercard has been able to maintain its superior operating performance in 2018 with revenues growing 21% in the nine months ended Sep 30, 2018. Its earnings per share rose to $4.94, marking a 42% year-over-year increase. This strong top- and bottom-line growth was fueled by the company's 17% increase in switched transactions, the number of times a Mastercard account is used to facilitate a purchase, and a 14% increase in gross dollar volume, the total dollar amount of all transactions across Mastercard's network.
The company’s operating margin of 54% in the first nine months remains impressive and is above management’s target of 50%. The strong margins have been achieved by the company’s organic and inorganic growth strategies and by expanding its service business.
Via its Service business, the company offers to merchants and financial institutions services like fraud detection, reward program management, consulting, and data analytics. This provides revenue diversification beyond its core payment processing business. In the first nine months of this year, Service revenues grew 17% year over year.
Strong retail sales this holiday season should also buoy the company’s fourth-quarter results.
The stock has grown 23% year to date compared with the industry’s growth of 1%.
What Will Fuel Growth in 2019?
The company has been laying emphasis on its services business, since it has helped it to stand out among the other players in the industry.
The company is also working on expanding its presence in the Business to Business (B2B) space. This space remains underpenetrated and offers immense scope for growth. In this vein, the company launched Mastercard Track, which solves key challenges in the procure-to-pay process, including managing supply chain risk and creating more transparency in the B2B payments’ process. The company estimates that there is $120 trillion in addressable payment flows in B2B globally.
Mastercard is also improving the consumer authentication experience via its Mastercard Identity Check, which uses the data-rich EMV 3D secure authentication standard and applies Artificial Intelligence (AI) and behavioral biometric capabilities to verify a consumer with a single touch or click. This will be rolled out globally in early 2019.
The company’s recent acquisitions of Oltio, a mobile payments technology company; VocaLink; Brighterion, Inc., a leading software company specializing in artificial intelligence, and NuData Security will continue to create synergies and expand its business.
Zacks Rank and Stocks to Consider
Mastercard carries a Zacks Rank #3 (Hold). Investors interested in the financial transaction services sector can also look into some other top-ranked stocks like Cardtronics plc (CATM - Free Report) , Evertec, Inc. (EVTC - Free Report) and Green Dot Corporation (GDOT - Free Report) .
Cardtronics plc provides automated consumer financial services via its network of automated teller machines (ATMs) and multi-function financial services kiosks. The company sports a Zacks Rank #1 (Strong Buy) and came up with an average four-quarter beat of 50.24%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Green Dot operates as a pro-consumer bank holding company, providing personal banking for the masses. The company has a Zacks Rank of 1 and delivered an average four-quarter positive surprise of 18.40%.
EVERTEC engages in transaction processing business, serving financial institutions, merchants, corporations and government agencies in Latin America and the Caribbean. The stock carries a Zacks Rank of 2 and pulled off average earnings surprise of 16.99% over the last four reported quarters.
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