On Wednesday, Oppenheimer & Co. analyst Dominique Gabriel upgraded Mastercard to an “outperform” rating with a 12-18-month price target of $510, 19% higher than the stock's closing price of $428.27 that day. .
In a note to clients, Gabrielli wrote that there is some concern about Mastercard MA's estimated 17% annual per share growth rate,
Over the next three to five years, because this was slower than the pace of growth before the Covid-19 pandemic. But he concluded that the pace of expected earnings growth was “good enough” to support the price target.
Earnings per share growth
Looking back, Mastercard's earnings per share rose at a compound annual growth rate (CAGR) of 29.1% for the three-year period ending in 2019. That was an impressive pace of earnings growth, compared to a three-year CAGR of 9.4% for 2019. 2019. Financial Services Sector of the S&P 500 and 10.2% of the entire S&P 500 SPX.
It was slightly behind Visa Inc's three-year EPS compound annual growth rate through 2019 of 29.2%. V,
Mastercard's main competitor is payment processing services.
During 2020, when the pandemic crippled consumer spending, Mastercard's earnings fell 25% to $6.37 per share. The consensus estimate among analysts surveyed by FactSet is for the company's 2023 EPS to total $12.16. If we skip the first pandemic year, the 2023 estimate would result in a 17.9% two-year CAGR of Mastercard's $5.90 profitability in 2021.
MasterCard will announce its fourth-quarter results on January 31, before the market opens. Visa is scheduled to announce fourth-quarter numbers on January 25, after the market closes.
EPS growth expected from here
Now let's look ahead, using the consensus estimates among analysts polled by FactSet:
| a company | Estimated 2023 EPS | Estimated 2024 EPS | Estimated 2025 EPS | Estimated two-year CAGR through 2025 | Price/consensus 2024 EPS estimates |
|
MasterCard Class A |
$12.16 |
$14.24 |
$16.78 |
17.5% |
30.1 |
|
Visa company class A |
$9.04 |
$10.23 |
$11.61 |
13.3% |
25.9 |
|
Standard & Poor's 500 Financials |
$39.70 |
$43.45 |
$48.16 |
10.1% |
14.5 |
|
Standard & Poor's 500 |
$217.67 |
$242.92 |
$274.31 |
12.3% |
19.7 |
|
Source: Factset |
|||||
Both Mastercard and Visa trade at much higher price-to-earnings ratios than the financial sector and the S&P 500. Mastercard is trading at the higher price-to-earnings ratio, while earnings per share are also expected to grow much more quickly than Visa over the next two years. Years.
Although Mastercard is not a cheap stock, its rapid earnings growth commands a premium. Gabriel recommended “quality buys to start 2024 versus chasing high-flying fintech stocks at current valuations.”
“We are increasingly positive about payments after years of poor performance,” he added.
A very long look back at strong financial performance
FactSet defines a company's return on invested capital, or ROIC, as its profit divided by the sum of the book value of its common stock, preferred stock, long-term debt and capitalized lease liabilities.
ROIC is an annual figure that highlights the management team's ability to make the most efficient use of funds invested to finance its business. It's not a perfect tool for measuring performance, partly because different industries are naturally more capital intensive than others. Mastercard and Visa have an advantage over lenders, for example, because their businesses are less capital-intensive. They do not collect deposits or borrow money to finance the lending business. They simply process the payments, which means they don't take on the credit risk. (The actual lending is done through banks, which is why you apply to a bank for a Visa or MasterCard.)
FactSet calculates ROIC for continuous 12-month periods. Therefore the most recently completed ROIC figures are for the 12 months ending September 30th. Starting with the 72 financial sector companies in the S&P 500, looking back at the 10 most recent 12-month periods through September 30 and their average ROIC in numbers, here's how the top 10 ranked:
| a company | tape | Average return on investment for 10 years through September 30 | ROIC for 12 months to September 30 | Minimum ROIC for 10 years | Maximum investment return for 10 years |
|
MasterCard Class A |
Master's, |
46.5% |
54.0% |
42.3% |
56.0% |
|
Standard & Poor's International |
SPGI |
36.0% |
5.2% |
5.2% |
53.7% |
|
Market Access Holding Company |
mktx, |
28.6% |
21.6% |
21.6% |
34.8% |
|
T. Rowe Price Group |
consider, |
28.4% |
16.6% |
16.6% |
38.7% |
|
Jack Henry & Company |
Jakhi, |
26.0% |
19.6% |
19.0% |
31.7% |
|
FactSet Research Systems Company |
Defense and security forces, |
22.3% |
13.8% |
13.8% |
27.7% |
|
Visa company class A |
Fifth, |
21.7% |
29.3% |
19.2% |
29.3% |
|
Moody's Corporation |
Mko, |
21.7% |
14.8% |
14.8% |
26.0% |
|
Ameriprise Financial Corporation |
Ampere, |
20.1% |
29.6% |
16.3% |
33.4% |
|
MSCI Class A Company |
MSCI, |
18.8% |
26.9% |
15.6% |
26.9% |
|
Source: Factset |
|||||
Mastercard has the best 10-year average ROIC among companies in the S&P 500 financial sector. It has also achieved the highest return on investment (ROIC) in the recent period. Its minimum and maximum return on investment (ROIC) also ranked highest over the past 10 years out of 72 companies in the sector.
Click on the trends to learn more about each company.
Click here for Tomi Kilgore's detailed guide to much of the information available for free on the MarketWatch rates page.
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