Saturday, July 9, 2011
MasterCard Incorporated (MA) - Stock Pitch
The company which I will discuss in brief is MasterCard Incorporated (NYSE: MA). A leader in electronic payment, MasterCard has no debt with a $3 billion cushion full of cash on its books and between 2008 and 2010, MasterCard’s net profit increased 57%.
With international expansion and the increased use of debit cards, credit cards, and mobile payments, the use of electronic payments will rise in 2011 and will continue in 2012. The current change in regulation may put pricing pressures on payment processors, but I believe that the global expansion and the ever increasing shift towards electronic payments will give rise to the large firms in this sector.
Investors have a misconception about this industry which should quickly be cleared up. Many think that the delinquent credit card bills and the dire state of the economy will push the stock prices of payment processors down the drain. This is just not the case. Investors and analysts need to keep in mind that banks extend credit to their customers while MasterCard processes the transactions.
A quick look at the cost of equity and return on total capital (ROTC) of MasterCard will give an investor more insight. With a cost of equity of 26.58%, calculated by utilizing CAPM method, and an actual ROE of 42.33%, this stock is great for investors that are seeking a high growth investment. ROTC was at 36%, while its closest competitor Visa experienced a ROTC of 11.8%
MasterCard’s best known competitor is Visa Incorporated (NYSE: V) and the following is a breakdown of their comparison:
MA vs V:
Market Cap: 40.12B vs. 74.48B
Revenue: 5,539B vs. 8,065B
Net Income: 1,847B vs. 2,964B
Net Margin: 33.35B vs. 36.75B
PE: 21.20 vs. 22.98
Nothing should strike the investor as unusual. Both the firms are in good financial position, but MasterCard has half the market capitalization of Visa which could indicate better growth prospects for the stock price. With a Price/Earnings To Growth (PEG) Ratio of 0.94 and a ROE of 42.33, MasterCard is undervalued and offers high growth prospects.