(MA) - Mastercard Inc - ROE of 30%, squashing the industry average of 9%

June 20th, 2008

Mastercard Incorporated (MA), a Zacks #1 (Strong Buy) company, continues to reward investors with both growth and income. The company posted an outstanding first quarter in late April and boasts a ROE of 30%, squashing the industry average of 9%. Analysts see more growth ahead as evidenced by a hike in 2008 earnings forecasts of 15% over the past three months. The company’s dividend yield of 0.2% is a competitive one within its industry as MA operates in a space that offers very little in terms of dividend income.

Company Description

As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes more than 18 billion transactions each year, and provides analysis as well as consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard(R), Maestro(R) and Cirrus(R), MasterCard serves consumers and businesses in more than 210 countries and territories.

Recent Events

The company recently said that it would temporarily repeal fees that were charged for cross-border transactions in Europe. This was done in order to abide by European Commission’s December 19, 2007 decision and avoid possible fines since, according to the European Union, the cross-border transactions fees were in violation of EU rules on fair competition.

President of Mastercard Europe Javier Perez commented, “We said in December that although we strongly disagree with the European Commission’s decision, we would comply with it. At the same time, we have solid legal arguments supporting our appeal of the decision to the European Court of First Instance, and we will continue to vigorously pursue that appeal. MasterCard’s policy is to comply with all applicable decisions and regulations, but to challenge them through appropriate channels when we believe that is necessary.”

In late May, Reuters reported that (MA) announced its expectation of double-digit net revenue growth for 2008. Over the longer term, the company is shooting for average annual net income growth of 20% to 30% and average annual net revenue growth of 12 % to 15%.

Higher Estimates

Analysts are also growth for the credit and debt card processor. Five out of 18 covering analysts upped full-year 2008 earnings forecasts to $8.68 per share from last month’s $8.54. Three months ago, projections stood at $7.54. The most accurate current estimate is most bullish at $8.87 per share.

Strong Growth

The Zacks #1 (Strong Buy) company’s first-quarter report noted that profit more than doubled thanks to more customers abroad using the company’s credit and debit cards. Net revenue totaled $1.2 billion, a 29.2% increase over the year-prior result. Cardholders in U.S. also increased their use of the company’s cards but at a more moderate pace.

Industry Comparisons

Mastercard’s earnings per share are expected to grow by 21% over the next 3 - 5 years, topping the industry average of 15%. The company’s ROE of 30%, squashes the industry average of 9%. Mastercard’s net profit margin of 30% crushes the industry’s average of 4%.

Income

The company is yielding 0.2% as it operates in a space that is not known as a dividend paying industry.

Content Courtesy: Zacks Investment Research

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