On May 13, 2013, shares of MasterCard Inc. (MA - Analyst Report) reached a 52-week high of $558.41 per share. The momentum was driven by the company’s strong first-quarter earnings as well as a track record of outperforming estimates. MasterCard generated positive earnings surprise in the last four quarters with an average surprise of 1.95%.
On May 1, 2013, MasterCard reported first-quarter 2013 operating earnings per share of $6.23, which comfortably surpassed the Zacks Consensus Estimate of $6.19 by 0.7%. Results significantly beat the year-ago quarter’s earnings of $5.36 as well.
Total revenue grew 8.4% year over year to $1.91 billion, although it marginally lagged the Zacks Consensus Estimate of $1.93 billion.
The reported quarter experienced better pricing, increased number of processed transactions, strong gross dollar value (GDV) growth and marginal growth in tax rate, which further led to higher-than-expected operating cash flow. Modest growth in operating expenses also supported the margins’ upside.
Moreover, MasterCard enjoys ample competitive advantage in terms of a sufficiently risk-free balance sheet, thus generating incremental shareholder value through efficient capital deployment. In addition, the recent acquisition and alliances, technology upgrades along with other product-diversification and geographic-expansion initiatives are expected to enhance growth in the long-term.
Further, the valuation of MasterCard looks reasonable. The shares are currently trading at a premium to the peer group average on both a price-to-earnings and a price-to-book basis. However, its return on equity of 42.5% is also higher than the peer group average of 21.6%.
MasterCard currently carries a Zacks Rank #3 (Hold). Other companies in the financial transaction services business that are worth considering are Visa Inc. (V - Analyst Report) , Fidelity National Information Services, Inc. (FIS - Analyst Report) and Vantiv, Inc. (VNTV - Snapshot Report) . All these companies carry a Zacks Rank #2 (Buy).