Why the Upgrade?
MasterCard has been experiencing rising earnings estimates on the back of improved operating leverage, which was evident in its third-quarter 2013 earnings beat. Moreover, the company’s improved cash flow and latest capital actions have been impressive.
Additionally, this global electronic payment processor delivered positive earnings surprises in all the last 4 quarters with an average beat of 4.2%. MasterCard also outperformed the one-year S&P 500 Index, which posted an increase of 28.8% against the modest return of 66.5% clocked by the company.
On Oct 31, MasterCard reported third-quarter operating earnings per share of $7.27, which modestly surpassed the Zacks Consensus Estimate of $6.95 and the year-ago quarter number of $6.17.
Although total operating expenses rose 13.6% over the prior-year quarter, top line soared 15.6% based on better pricing, increased number of processed transactions and strong gross dollar value growth. Accordingly, operating income and margins witnessed a boost and also drove the operating cash flow.
MasterCard benefits from strong secular demand growth, meaningful international exposure, high barriers, excellent pricing power and balanced business mix. Moreover, the company’s latest capital plan including a 10-for-1 stock split and a 83% hike in regular dividend continue to boost investors’ confidence in the stock.
We also remain optimistic of MasterCard’s projection to increase its total revenue from the U.S. operations in the mid-to-high single-digit range, while that from international operations to grow in double digits.
Based on MasterCard’s capital adequacy and organic growth, the Zacks Consensus Estimate for 2013 moved north by 7.3% to $26.35 per share in the last 60 days. The estimate for 2014 is pegged at $31.10, up 0.9% over the same period. Meanwhile, the Most Accurate estimate for MasterCard’s 2013 earnings stands at $26.55 a share, resulting in an Earnings ESP of +0.8%.
Other Insurers Worth a Look
Investors interested in the financial industry may also consider stocks like Heartland Payment System Inc. (HPY), Higher One Holdings Inc. (ONE) and Alliance Data Systems Corp. (ADS). All these stocks carry the same Zacks Rank as MasterCard.