[Updated 06/11/2021] Mastercard update
We estimate that at a current price of around $ 365 a share, up about 80% from the lows of March 23 last year. Mastercard promotions (NYSE: MA) is trading slightly above its near-term potential. The company’s stock is up from $ 203 to $ 365 from the March 2020 low, compared to the S&P 500, which is up nearly 90% – slightly lagging the broader market. While the company posted better-than-expected results in the first quarter of 2021, its cross-border traffic continues to decline due to travel restrictions related to Covid-19. Consequently, investors are wary of the company’s shares.
In its recently released fiscal year 2021 first quarter results, Mastercard reported net revenues of $ 4.2 billion, up 4% from the same period last year. Both internal valuation and transaction processing revenue were up 7% year-on-year, driven by an increase in gross dollar-denominated transactions and the number of switched transactions. However, its cross-border volume also continued to decline in the first quarter – by 17% compared to the same period last year, resulting in a 23% decrease in cross-border volume charges.
Mastercard’s revenues of $ 15.3 billion in 2020 were 9% lower than in 2019. This was mainly due to a 29% yoy drop in international volumes and a 3% increase in discounts and benefits. The company was hit in 2020 by lower levels of consumer spending and COVID-19-related restrictions on travel, public gatherings, etc. Notably, consumer spending has rebounded somewhat in recent quarters, which is also evident from increased internal estimates. income. However, travel restrictions remain in place, which lowers cross-border fees. However, we expect restrictions to ease as more and more people receive the Covid-19 vaccine. General, Mastercard income in fiscal 2021 could reach $ 18.3 billion. In addition, the Mastercard P / E multiplier has changed from just below 34x in 2018 to around 56x in 2020. While the company’s P / E is now approaching 57x, there is a slight downside when comparing the current P / E with previous years – by the end of 2020, the P / E will be around 56x. Our dashboard “What factors influenced the 93% change in Mastercard stock from the end of 2018 to the present?” provides the key numbers that underlie our thinking.
[Updated 02/24/2021] Mastercard shares unlikely to bring high profits in the short term
We believe that after rising 73% from the lows of March 23 last year at a current price of about $ 350 per share Mastercard promotions (NYSE: MA) is trading above its near-term potential. MA, the second largest global payment solutions company in the world, has boosted its shares from $ 203 to $ 350 from a recent March low over the S&P 500, which rose nearly 75% – in sync with the broader market and up 8 % over the past twelve months. However, there is a mismatch in the growth of inventories and revenue – the company’s revenue over the last 4 quarters decreased by 9% YoY to a consolidated figure of $ 15.3 billion. Despite negative earnings growth, investors preferred Mastercard shares due to the recovery in consumer spending, which resulted in a consistent increase in transaction volumes in the second half of the year.
Mastercard beat the consensus for revenue and earnings in its recently released fourth-quarter results. The company posted net revenues of $ 4.1 billion, down 7% year-over-year, mainly due to a 29% year-on-year decline in international volumes. Likewise, the payment processing giant’s revenues for the full year 2020 were down 9% YoY to $ 15.3 billion, mainly due to a 29% YoY drop in international volumes and a 3% increase in rebates and incentives. … It is noteworthy that its gross volume in dollar terms has not changed on an annualized basis.
Due to the Covid-19 crisis, countries have imposed restrictions on business operations, travel, public gatherings, etc. Thus, international volume charges, which usually account for about 22% of net revenue, are down 40% in 2020 compared to the same period last year. On the other hand, consumer spending has improved slightly in recent quarters. Given the expected massive availability of the Covid-19 vaccine and the potential economic recovery, this is likely to lead to further increases in spending, which will benefit Mastercard income… That said, the recovery is likely to be gradual rather than immediate, and a sudden rise in income is unlikely. In addition, the Mastercard P / E multiplier has changed from just below 34x in 2018 to around 56x in 2020. While the company’s P / E is now approaching 55x, when comparing the current P / E with previous years, there is a downside – P / E of about 37x at the end of 2019 and almost 34x in 2018. “What factors influenced the 86% change in Mastercard stock from the end of 2018 to the present?” provides the key numbers that underlie our thinking.
[Updated 12/4/2020] Mastercard shares are expensive
We believe that after a 68% rise from March low at a current price of around $ 340 per share Mastercard warehouse (NYSE: MA) has surpassed its near-term potential. MA shares are up from $ 203 to $ 340 from a recent low versus the S&P 500, which is up nearly 65% - in sync with the broader market and is up 14% YTD. However, there is a mismatch between her earnings and inventory growth – Mastercard earnings fell 4% to a consolidated figure of $ 15.6 billion in the last 4 quarters, compared with a consolidated figure of $ 16.3 billion in the 4 quarters before. The positive investor sentiment can be attributed to improved consumer demand in recent months, which is likely to affect transaction volumes.
Mastercard recently released its third-quarter results with no consensus forecast. The company’s net revenue was $ 3.8 billion, down 14% from the previous year. The company derives a significant portion of its revenues from cross-border volume (22%) and transaction processing fees (34%), which were hit by the ongoing Covid-19 crisis and travel bans – cross-border transaction revenues fell 48% on a year. / y in the 3rd quarter. While the economy has seen some improvement over the last quarter, it will likely take some time for international travel and consumer demand to recover to pre-COVID levels. Consequently, Mastercard’s revenue is unlikely to recover immediately. In addition, Mastercard’s P / E multiplier went from just above 41x in 2017 to around 37x in 2019. Although the company’s P / E is now approaching 43x, when comparing the current P / E with previous years, there is a downside – P / E is around 37x at the end of 2019 and close to 41x in 2017. Our dashboard Buy or sell Mastercard shares? provides the key numbers that underlie our thinking.
[Updated 10/01/2020] Mastercard shares are unlikely to remain at current levels
After rising 66% from the March bottom, Mastercard promotions (NYSE: MA) looks fully priced based on historical P / E multiples. Mastercard, the world’s second largest payment solutions company, surged from $ 203 to $ 338 from a recent low compared to the S&P, which climbed roughly by 50%. Stocks are leading the broader markets as investors are positive about a rebound in consumer demand in the coming months, leading to higher transaction volumes. It is noteworthy that since the beginning of September there has been some negative movement in the market due to a sharp increase in profits after a strong run – MA shares fell 6%. However, it is still 14% above the end of 2019 levels.
Mastercard shares are partially back to where they were before falling in February as the coronavirus outbreak turned into a pandemic. This seems to make it fully priced as in reality demand and revenues are likely to be lower than last year.
Some growth over the past 3 years is justified by the roughly 57% growth seen in Mastercard revenue from 2016 to 2019, which led to a 100% increase in net profit. It is noteworthy that in 2017, net income decreased mainly due to the increase in income taxes in connection with the adoption of the US Tax Act. In addition, the net profit margin increased from 37.7% in 2016 to 48.1% in 2019, as general and administrative (G&A) and advertising expenses declined as a% of revenue.
Although the company has shown strong revenue and profit growth in recent years, its P / E ratio has increased. We believe equities are unlikely to see significant upside potential following the recent rally and potential weakness from the recession triggered by the Covid outbreak. Our dashboard “What factors influenced the 235% change in Mastercard shares from 2016 to the present?‘has basic numbers.
The P / E ratio for Mastercard has changed from about 27x in 2016 to just above 37x at the end of 2019. Although the company’s P / E has increased to about 42x now, there is a downside risk when the current P / E compares to the observed levels. in recent years, the P / E ratio was 37x at the end of 2019 and about 33x more recently at the end of 2018.
So what are the likely triggers and timing for the downside?
Mastercard is a payment processing giant that provides a variety of services to support credit, debit and related card solutions for more than 24,000 financial institutions worldwide. The company generates income by charging fees for processing transactions and other services. The company generates about 22% of its revenue from international fees and 34% of its revenue from transaction processing fees. Both of these revenue streams were hit by lockdown restrictions and travel bans in the first and second quarters of the year – the company reported a 19% drop in revenue from the same period last year in the second quarter of 2020. However, the economy is likely to see some improvement in Q3 and Q4 as isolation restrictions have been eased in most parts of the world. This is also evident from the recently released consumer spending data, which suggests monthly growth compared to 8.5%, 5.6% and 1.9% in May, June and July. respectively. Regardless, it will likely take some time for transaction volumes to recover to pre-Covid levels, and Mastercard Third quarter results are likely to be lower than a year earlier.
Actual recovery and its timing depend on broader containment of the spread of the coronavirus. Our dashboard Trends in US Covid-19 Cases provides an overview of how the pandemic is spreading in the US and contrasts with trends in Brazil and Russia. Following the Fed stimulus, which set a basis for fears, the market was ready to “look over” the current period of weakness and look at a longer term perspective. As investors focus on 2021 results, estimates become important in determining value. Although market sentiment can be volatile, the evidence of a growing number of new cases may scare investors again.
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