With consumer spending in April increasing more than expected despite concerns over inflationary pressures, the consumer financial industry could be a promising investment. Moreover, the global consumer finance market is projected to grow at a CAGR of 7.1%, reaching $1.96 trillion by 2029.
In keeping with the sector’s outlook, the global payment processing tech giant, Mastercard Incorporated (MA), reported a strong first-quarter performance, and its prospects seem solid despite the turbulent macroeconomy.
MA’s CEO, Michael Miebach, stated, “We delivered strong revenue and earnings growth this quarter, reflecting resilient consumer spending and the continued recovery of cross-border travel.”
He further commented that the company is actively managing the business to capitalize on the significant digital payment and services opportunities ahead and stands ready to navigate through any headwinds.
He believes that MA’s focused strategy, diversified business model, and relationships around the globe keep it well-positioned for long-term growth.
On May 26, 2023, UniCredit and MA announced a global expansion in their payment partnership. This significant broadening of the companies’ relationship is anticipated to deliver payment innovation and enhanced digital experiences to customers.
Over the past nine months, the stock has gained 26.6% to close the last trading session at $377.80.
Here are some factors that could influence MA’s performance in the upcoming months:
Robust Financials
MA’s adjusted net revenues increased 11.9% year-over-year to $5.75 billion for the fiscal first quarter (ended March 31, 2023). The company’s operating income increased 6.3% year-over-year to $3.14 billion. Moreover, its adjusted EPS came in at $2.80, representing a 1.4% increase from the prior-year quarter.
High Profitability
In terms of the trailing-12-month EBIT margin, MA’s 56.92% is 178.5% higher than the 20.44% industry average. Its 100.00% trailing-12-month gross profit margin is 69.8% higher than the 58.91% industry average. Likewise, its 47.33% trailing-12-month levered FCF margin is 205.4% higher than the industry average of 15.50%.
Favorable Analyst Estimates
The consensus EPS estimate of $12.26 for the fiscal year 2023 represents a 15.2% improvement year-over-year. The consensus revenue estimate of $25.18 billion for the same year indicates a 13.3% increase from the prior year.
Its EPS for fiscal 2024 is expected to increase 18.6% year-over-year to $14.55, while its revenue is expected to increase 13.7% year-over-year to $28.63 billion.
MA’s revenue and EPS for the quarter ending June 30, 2023, are expected to increase 12.5% and 16.5% year-over-year to $6.19 billion and $2.98, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
POWR Ratings Show Promise
It’s no surprise that MA has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a B grade for Stability, consistent with its 24-month beta of 0.95. It also has a B for Quality, in sync with its high profitability.
Within the Consumer Financial Services industry, MA is ranked #7 out of 47 stocks.
Click here to access the additional ratings of MA for Growth, Value, Momentum, and Sentiment.
Bottom Line
Despite the current market volatility and recent banking woes, MA’s strong fundamentals and optimistic growth trajectory make it well-poised for significant growth. Given the company’s high profitability and favorable analyst estimates, the stock could be a solid buy.
How Does Mastercard Incorporated (MA) Stack Up Against Its Peers?
While MA has an overall POWR Ratings grade of B, equating to a Buy rating, one may also want to consider these other stocks within the Consumer Financial Services industry with an A (Strong Buy) or B (Buy) rating: Regional Management Corp. (RM), EZCORP, Inc. (EZPW), and Visa Inc. (V).
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MA shares were trading at $379.52 per share on Friday afternoon, up $1.72 (+0.46%). Year-to-date, MA has gained 9.49%, versus a 14.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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