MasterCard Financials Reveal A Bullish 2014

MasterCard’s MA stock climbed nearly 3% on May 21st continuing its recent upward trend after beating earnings estimates in the first quarter. Investors and market analysts alike are confident that the company will have a strong year. The numbers tell an optimistic story that suggests this confidence is not misplaced. MasterCard is proving itself to be an increasingly attractive stock for investors through 2014.

First Quarter Results

At the beginning of May, MasterCard reported first quarter profits of $870 million which represented a 14% increase over the same time period one year earlier. This beat the analysts’ predictions by 1 cent per share.

The growth in revenue can be attributed to an increased number of transactions processed and the growing number of MasterCard and Maestro brand cards it has issued. This growth was enough to offset the company’s operating expenses which have risen 11.6% year over year.

The company has shown to be more than capable to bear the increased operating costs via sustained earnings growth without the need to take on significant debt. Its debt to equity ratio is 0.23at the moment. Although that is above the average of the S&P 500, it still falls below the industry average.

Furthermore, the increased operating costs can largely be attributed to an increase in strategic investments and acquisitions. Despite facing some obstacles, MasterCard seems to have a solid business plan that will help maintain this upward trend.

Business Strategy and Obstacles

That business plan includes a deal to buy ElectraCard Services Private Ltd, and Indian based payment processing company.  The amount of the purchase has not yet been disclosed but the deal is expected to close this quarter.

The acquisition will expand MasterCard’s customer base in over 25 countries, helping make the company an even bigger player in the market which is currently dominated by Visa V. Both MasterCard and rival Visa are encountering some obstacles in the global market, however.

Although the two companies are responsible for upwards of 90% of credit card transactions in Russia; Putin signed a new law this month imposing a slew of tough regulations on the international cards. The law came in response to US sanctions which led to the two companies stopping their services for Rossiya Bank and Sobinbank.

While this news may foreshadow growing economic tensions between the countries causing trouble for international businesses operating in each; it will not have a significant effect on MasterCard’s financials. Russia represents about 3% of the global economy and MasterCard is a dominate international player—becoming even more dominate with the acquisition of ElectraCard.

Additionally, the company offers a number of attractive services for customers in the United States and abroad. These services include a comprehensive product line of credit cards and loans for every circumstance. Most recently, it is partnering with Pulseto speed up the adoption of EMV chip cards in the United States. EMV debit cards offer greater security and convenience to users and are already widely used in Europe and other markets around the world.

The company is also investing heavily into improving its services globally. In addition to the acquisition of ElectraCard, MasterCard will also finalize an agreement to acquire Pinpoint, an Australian based company which manages rewards programs and services for financial institutions.

MasterCard for Investors

In February of this year, the company paid quarterly dividends of 11 cents per share. MasterCard has increased its dividends twice in 2013 and traditionally increases them annually by 100%. This trend of increasing dividends comes along with a $3.5 billion share repurchase program scheduled to take place throughout 2014. The company has already repurchased $1.7 billion worth of shares during so far. This is great news for investors and further evidence of how well MasterCard is doing financially.

Conclusions

MasterCard has proven itself a buy in 2014. Reports of solid revenue growth and profit margins coupled with a debt to equity ratio below the industry average reveal the strong financial position this company has taken. Based on its current trajectory, the stock seems poised to overtake its 5 year high and exceed $85 per share.